Previously, the People's Bank of China had stepped in to prevent the yuan from dropping below the psychological level of seven per US dollar, "no doubt mindful of the headlines it would create", said Julian Evans-Pritchard, senior China economist for Capital Economics. Apple fell three per cent and Microsoft fell 2.4 per cent.
"By weakening their currency, China is attempting to offset the effects of the 10% tariff, since a weaker currency makes the cost of China's exports more affordable around the globe, while causing the cost of USA imports into China to go up". Caterpillar and Boeing, which both rely heavily on business in China, saw their shares off more than 2 percent on renewed trade tensions.
"Markets will brace for trade tensions to boil", said Vishnua Varathan of Mizuho Bank in a report.
In a statement on Monday, the central bank linked the yuan's weakness to the fallout from the trade war but said it would not change its currency policy and that two-way fluctuations in the yuan's value were normal.
In a statement Monday, the People's Bank of China denied intentionally weakening the yuan as a retaliatory move against the USA, saying it would "not engage in competitive devaluation" or "use the exchange rate as a tool to deal with external disturbances such as trade disputes", according to a translation.
If the Trump administration proceeds with a 10% tax on Chinese goods starting September 1, the USA will have hiked tariffs on essentially all goods from the country.
The central bank attributed the yuan move to protectionism while saying it can still maintain a steady currency.
Tokyo's Nikkei 225 fell to 20,720.29 and Hong Kong's Hang Seng declined 2.9% to 26,151.32. Seoul's Kospi was 2.5% lower at 1,948.97.
The roots of the dispute come from USA president Donald Trump's "America first" project to protect the US' position as the world's leading economy, while encouraging businesses to hire more workers in the U.S. and to manufacture their products there.
At 9:50 a.m. ET, the Dow Jones Industrial Average was down 505.65 points, or 1.91%, at 25,979.36, the S&P 500 was down 59.19 points, or 2.02%, at 2,872.86.
European stocks also fell steeply at the open. The MSCI Asia Pacific Index dropped 1.6%, while the MSCI Hong Kong Index slid for a ninth day as protesters moved to shut down the city with a general strike.
On Friday, the S&P 500 lost 0.7% and the Dow dropped 0.4%.
Trade tension and uncertainty over the outlook for American interest rates have blotted out a better-than-expected corporate earnings results. The S&P 500 is up almost 17%.
ENERGY: Benchmark U.S. crude lost 52 cents to $55.14 per barrel in electronic trading on the New York Mercantile Exchange. Brent crude, used to price global oils, shed 72 cents to $61.17 in London.
CURRENCY: The dollar dropped to 106.02 yen from Friday's 106.59 yen. The euro gained to $1.1129 from $1.1109.