European stocks tumble on tariff moves as Chinese yuan sinks

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"Stocks are sliding after China retaliated against the latest salvo of Washington tariffs by letting the yuan weaken below seven to the dollar," said Fawad Razaqzada at Forex.com.

Major US indices had dived by more than two per cent by the late New York morning, with the tech-heavy Nasdaq close to a three per cent decline.

London and Paris were also more than two percent down at the close, with Frankfurt doing only marginally better.

Earlier, there was heavy selling in Asia where Hong Kong slid nearly three per cent.

'A LOT MORE PAIN'

"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," said IG analyst David Madden.

Trump's announcement would mean as that of Sep 1 all goods imported from China will be subject to US punitive tariffs.

The news had already sent all three major Wall Street indices slumping to their lowest levels since June on Friday, with the S&P 500 and Nasdaq recording their worst weekly losses.

"US stocks are falling after posting the largest weekly loss on Friday that came mostly from escalated trade tensions," said Charles Schwab analysts.

"The trade concerns escalated over the weekend as China allowed its currency to fall below a key psychologically important level not seen in over a decade."

The yuan's fall fuelled speculation that Beijing was allowing its currency to decline to support exporters and offset Trump's latest threat to hit US$300 billion in Chinese goods with 10 per cent tariffs.

"This has clearly annoyed Trump," said Razaqzada.

The US leader regularly accuses the Chinese central bank of artificially weakening the yuan - charges long denied by Beijing, and did so again on Monday in an early tweet.

'BEIJING MEANS BUSINESS'

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.

"Beijing means business," Madden said.

"The softness in the Chinese currency should assist domestic exporters but it could be construed as a dig at the Trump administration."

The dollar weakened against other currencies, including the euro and the yen.

"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.

Key figures around 1540 GMT:

London - FTSE 100: DOWN 2.5 per cent at 7,223.85 points (close)

Frankfurt - DAX 30: DOWN 1.8 per cent at 11,658.51 (close)

Paris - CAC 40: DOWN 2.2 per cent at 5,241.55 (close)

EURO STOXX 50: DOWN 1.9 per cent at 3,310.93

Pound/dollar: DOWN at US$1.2145 from US$1.2162 at 2100 GMT

Euro/pound: UP at 92.12 pence from 91.33 pence

Euro/dollar: UP at US$1.1187 from US$1.1108

Dollar/yen: DOWN at 106.12 yen from 106.59

Tokyo - Nikkei 225: DOWN 1.7 per cent at 20,720.29 (close)

Hong Kong - Hang Seng: DOWN 2.9 per cent at 26,151.32 (close)

Shanghai - Composite: DOWN 1.6 per cent at 2,821.50 (close)

Brent North Sea crude: DOWN 2.0 per cent at US$60.66 per barrel

West Texas Intermediate: DOWN 0.8 per cent at US$55.22 per barrel