This was after China retaliated against the US in their ongoing trade war — by devaluing the yuan to its lowest level in more than a decade. The Australian Broadcasting Corporation said the Chinese currency fell beyond the key seven-per-US-dollar (seven yuan-per-$1.46) threshold.
Market analysts said Beijing's latest move was payback against the US - after President Donald Trump vowed last week to impose 10% tariffs on the remaining $300 billion of Chinese imports from September 1.
It is also a way for China to make its exports cheaper, partially offsetting the harmful impact of US tariffs, the ABC reported.
Adding to the tensions, China's Commerce Ministry said Chinese companies have stopped buying US agricultural products and that China will not rule out imposing import tariffs on US farm products that were bought after August 3.
Trump condemned China's latest act of retaliation over Twitter.
"China dropped the price of their currency to an almost a historic low," he tweeted.
Trump's tweet was backed up by an official statement from Treasury Secretary Steven Mnuchin, which said the US Government had determined that China is manipulating its currency and "will engage with the International Monetary Fund to eliminate the unfair competitive advantage created by China's latest actions."
"China has a long history of facilitating an undervalued currency through protracted, large-scale intervention in the foreign exchange market," the Treasury statement continued.
"In recent days, China has taken concrete steps to devalue its currency, while maintaining substantial foreign exchange reserves despite active use of such tools in the past.
"The context of these actions and the implausibility of China's market stability rationale confirm that the purpose of China's currency devaluation is to gain an unfair competitive advantage in international trade."
US technology companies and banks were hit hardest, with Apple (down 5.2%) and Bank of America (down 4.4%) posting heavy losses.
It was a similar situation in European markets, with London's FTSE dropping 2.5% and Germany's DAX losing 1.8%.
"Recent events suggest a US-China trade deal is unlikely to be reached any time soon and indeed it seems reasonable to expect trade tension to get worse before they get better," said National Australia Bank senior foreign exchange strategist Rodrigo Catril.