LONDON: World stock markets plunged Monday and the Chinese yuan fell sharply in reaction to US President Donald Trump vowing to impose fresh tariffs on Chinese goods in the latest trade war flare-up.
Europe's stocks dived about two percent, mirroring heavy falls in Asia -- where Hong Kong tumbled nearly three percent as it was hurt also by ongoing pro-democracy protests.
"European equity markets have been rocked by the rising trade tensions between the US and China," said IG analyst David Madden.
"There is a feeling that China could inflict a lot more pain on the US in terms of the trade spat, and many traders are worried the economic conflict will rumble on for some time."
Trump's announcement late last week means virtually all of the $660 billion in annual merchandise trade between the world's two biggest economies will be subject to punitive tariffs, with the latest duties to take effect September 1.
The news saw all three major Wall Street indices slump to their lowest levels since June, with the S&P 500 and Nasdaq recording their worst weekly losses of 2019 on Friday.
On Monday, the DJIA again came off to to a weaker start, losing around 400 points in the first moments of trading.
"US stocks are extending last week's largest drop of the year," noted Charles Schwab analysts.
In China, the yuan dropped to its lowest level to the dollar since August 2010, fuelling speculation that Beijing was allowing its currency to decline to support exporters and offset Trump's latest threat to hit $300 billion in Chinese goods with 10 percent tariffs.
The US leader regularly accuses the Chinese central bank of artificially weakening the yuan -- charges long denied by Beijing.
- China's dig at Trump? -
On Monday, the dollar soared to 7.0499 onshore yuan -- the Chinese currency's weakest level since 2008.
The dollar surged to 7.1114 offshore yuan, which is more freely traded.
"The fact the Chinese central bank allowed the yuan to fall through the 7.0 mark against the US dollar without intervening is a clear indication that Beijing means business," Madden added.
"The softness in the Chinese currency should assist domestic exporters, but it could be construed as a dig at the Trump administration."
The dollar, however, weakened against other currencies, including the euro, yen and the pound.
Beijing has vowed to hit back if Washington goes ahead with its latest threat, while news that demand for US exports had weakened underscored concern that trade was becoming a trouble spot for economies worldwide.
- 'A lot messier' -
"China is likely to drag out their response and retaliate in many ways against the US trade measures," warned analyst Edward Moya at trading firm Oanda.
Negotiators from both nations are expected to reconvene in Washington in early September for another round of talks after last week's discussions in Shanghai, but investors remain nervous, he added.
The yuan's depreciation spurred a sell-off across Asian equity markets.
- Key figures around 1330 GMT -
London - FTSE 100: DOWN 2.1 percent at 7,248.96 points
Frankfurt - DAX 30: DOWN 1.5 percent at 11,692.93
Paris - CAC 40: DOWN 1.8 percent at 5,262.95
EURO STOXX 50: DOWN 1.6 percent at 3,3323.88
New York - Dow: DOWN 1.5 percent at 26,074.92
Pound/dollar: UP at $1.2169 from $1.2162 at 2100 GMT
Euro/pound: UP at 91.84 pence from 91.33 pence
Euro/dollar: UP at $1.1173 from $1.1108
Dollar/yen: DOWN at 106.08 yen from 106.59
Tokyo - Nikkei 225: DOWN 1.7 percent at 20,720.29 (close)
Hong Kong - Hang Seng: DOWN 2.9 percent at 26,151.32 (close)
Shanghai - Composite: DOWN 1.6 percent at 2,821.50 (close)
Brent North Sea crude: DOWN 2.0 percent at $60.63 per barrel
West Texas Intermediate: DOWN 2.2 percent at $54.45