Stock markets fell Tuesday as investors dumped risky equities on spiking US-China tensions over a possible visit by House Speaker Nancy Pelosi to Taiwan. Traders were already skittish after a string of data showed economies beginning to take a hit from surging inflation and central bank interest rate hikes aimed at taming prices. A possible meeting between Pelosi and Taiwanese President Tsai Ing-wen is sure to anger Beijing, which views the island as its territory and has said the White House was playing “with fire”. While observers do not think the move will spark a conflict, US officials said China was preparing possible military provocations that could include firing missiles in the Taiwan Strait or “large-scale” incursions into Taiwan’s airspace. Heightened tensions between the world’s two superpowers have sent shivers through trading floors, compounding worries that Russia’s invasion of Ukraine could escalate into a wider war. “We’re seeing more risk aversion as Nancy Pelosi’s trip to Taiwan generates numerous unsettling headlines at a time of strained ties between the US and China,” said OANDA analyst Craig Erlam. “Pelosi’s proposed visit has been met with numerous threats from Beijing including an unspecified military response,” he said, adding that the reported trip was “making investors very nervous”. Reports of the visit hit US stocks, with all three main indexes dropping at the start of trading Tuesday. Asian stocks also fell earlier, though some markets recovered as the day wore on. Hong Kong and Shanghai led losses, shedding more than 2pc, while Taipei was off more than 1pc along with Tokyo. In Europe, Frankfurt was down 0.2pc and Paris by 0.2pc, while only London was up 0.1pc after oil giant BP announced soaring profits. “Objectively, given the potential seriousness of some kind of confrontation with China, the market is not reacting with abject fear about the outcome,” said market analyst Patrick O’Hare at Briefing.com. The safe-haven yen jumped to a two-month high against the dollar. The Taiwan dollar meanwhile sank to its lowest since April 2020 before bouncing back. The flare-up in tensions comes less than a week after US President Joe Biden and Xi Jinping held phone talks during which the Chinese leader warned the United States not to “play with fire”. The market selloff comes as investors try to assess the outlook for the global economy as leaders try to bring down sky-high inflation by lifting rates while at the same time maintaining growth. Australia’s central bank raised its central interest rate for a fourth time by another 50-basis points Tuesday. The Bank of England is also under pressure to make a more aggressive rate hike of 50 basis points this Thursday. Oil prices extended Monday’s steep losses that were fuelled by falling demand expectations.