Mumbai: Indian markets slipped in early trade on Thursday, tracking weak Asian markets on fresh concerns of trade war between world two biggest economies, US and China. The Sensex fell as much as 291 points at day’s low to 37,229, while the 50-share index Nifty declined to 11,263. Most Asian markets were lower on trade war fears, with Japan’s Nikkei, China’s Shanghai and Hong Kong’s Hang Seng slipping 1-2.5%.

The US President Donald Trump administration said it is weighing whether to increase the proposed tariff on $200 billion of Chinese goods to 25% from 10%, stepping up pressure on Beijing to change its trade practices. Trump has asked US Trade Representative Robert Lighthizer to consider hiking the duties, which could be implemented as early as next month.

The proposed higher tariff “is intended to provide the administration with additional options to encourage China to change its harmful policies and behavior and adopt policies that will lead to fairer markets," Lighthizer said in an emailed statement Wednesday.

Meanwhile, Federal Reserve left US interest rates unchanged and stuck with a plan to gradually lift borrowing costs amid “strong" growth that backs bets for a hike in September. While leaving rates on hold as expected, the Federal Open Market Committee (FOMC) repeated guidance for “further gradual increases" in its policy benchmark, lining up September’s FOMC meeting for the third hike of the year.

Interest rate hikes in the US may constraint foreign funds flow to emerging markets including India. So far this year, foreign institutional investors (FII) were net sellers of Indian equities worth $413 million, while domestic institutional investors have bought 66,268 crore.

Bank stocks fell after the Reserve Bank of India hiked repo rates in its latest monetary policy review. Punjab National Bank fell 1.9%, Bank of Baroda 1.8%, State Bank of India 1.2%, ICICI Bank 1.2%, Yes Bank 0.8% and Axis Bank 0.6%.

Economists said that the central bank’s decision to hike rates but leave the policy stance at ‘neutral’ suggests that it is not convinced that a series of hikes is warranted. “Having delivered a cumulative 50 basis points of rate hikes already and with a real repo rate of 1.7%, we expect the RBI to leave rates unchanged through FY19, giving it time to assess the impact of the hikes already delivered and because we expect growth and inflation to soften in coming quarters," Nomura said.

(Bloomberg contributed to this story)

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