Australian shares have lost around $90 billion in value over two days after a sharp escalation in the US-China trade war saw Wall Street suffer its worst day this year.

Key points: The All Ordinaries index shed around $57 billion in value during early trade, while the ASX 200 lost as much as 2.9pc

The All Ordinaries index shed around $57 billion in value during early trade, while the ASX 200 lost as much as 2.9pc The US has declared China a currency manipulator in response to a devaluation in China's currency on Monday

The US has declared China a currency manipulator in response to a devaluation in China's currency on Monday The Chinese currency move was in response to increased US tariffs and sent Wall St to its biggest fall this year

The benchmark ASX 200 dropped 192 points (or 2.9pc) in the first 10 minutes of trade.

If that continued, it would have made for the worst one-day decline on the ASX 200 in more than a year — since the "bondcano" falls on February 6, 2018.

However, its losses moderated slightly over the trading day, with the benchmark index finishing 2.4 per cent lower at 6,478 — its worst fall since October 25, 2018.

Meanwhile, the broader All Ordinaries fell 2.5 per cent to 6,546 points, wiping $53 billion off the local share market — combined with Monday's $36 billion slide Australian shares have lost around $90 billion in value over just two days.

The ASX 200 index is now down 5.4 per cent on its record high, set exactly a week ago, almost 12 years after it last traded at those levels.

Tuesday's Australian share losses ended up worse than counterparts in the Asia-Pacific — Tokyo's Nikkei fell 0.7 per cent and the Shanghai Composite 1.4 per cent, while Hong Kong's Hang Seng only dropped 0.9 per cent despite more widespread protests on Monday.

The Australian dollar, meanwhile, has lifted back to 67.83 US cents having earlier traded within a whisker of decade lows.

Best and worst performers

Every sector posted heavy losses, with technology (-4.2pc), health care (-3.5pc) and utilities (-2.8pc) being the weakest groups.

The list of worst-performing stocks include technology companies Xero (-6pc), WiseTech Global (-8pc) and Seek (-6.5pc).

On the flipside, the sectors that sustained the least damage were materials (-0.8pc) and energy (-2.1pc).

Only 14 stocks on the benchmark index closed higher, particularly miners of gold and rare earth minerals, including Lynas Corporation (+7.9pc) and Northern Star Resources (+1.8pc), while Fortescue also rallied late to finish 2.8 per cent ahead.

Gold mining stocks surged on the back of the precious metal's price rise, as investors piled into safe haven assets and fled from risky investments.

Meanwhile, Lynas Corporation's share price jumped on fears that China — which accounted for 80 per cent of rare earth imports by the US between 2014 and 2017 — may restrict its supply of these resources.

The Western Australian company, which operates a mine at Mount Weld, holds the unique position of being the only major producer of rare earths outside China — with the escalating trade concerns only increasing its geopolitical importance.

Rare earths are a group of 17 chemical elements — of which China is the world's dominant supplier — and they are used in a wide range of electrical goods, including mobile phones, electric cars, high-tech consumer electronics and military equipment.

What caused the market sell-off?

China has retaliated against the latest round of US tariffs by devaluing the yuan to its lowest level in more than a decade.

Allowing its currency to drop is one way for China to make its exports cheaper, partially offsetting the harmful impact of US tariffs.

"This is where it will annoy [US President Donald] Trump because his mechanism … of making things better for America can be [easily] countered by a currency movement like what China is doing," said Evan Lucas, chief investment strategist at InvestSMART.

China's payback against the US led to the Dow Jones index plunging 768 points and Wall Street's benchmark S&P 500 index falling 3 per cent on Monday (local time).

The massive falls in New York were mirrored in European markets overnight, with London's FTSE losing 2.5 per cent.

However, early trade on US futures markets suggests a modest bounce back tonight.

Mr Trump condemned China's latest move, via Twitter, and accused its trade rival of "currency manipulation", while the US Treasury officially declared China a currency manipulator.

Analysts say that the massive global sell-off is happening because Mr Trump's recent tariff announcement caught the market by surprise.

Last Friday, Mr Trump said the US will impose a 10 per cent levy on $US300 billion worth of Chinese imports from September 1.

Essentially, that is the value of all remaining Chinese goods which have not already been penalised with tariffs.

"No more than four-and-a-half [or] five weeks ago, we had the G20 summit — we actually saw Trump and [China's President] Xi shake hands," Mr Lucas said.

"You actually saw the President [Trump] saying he wouldn't put tariffs on Chinese exports in the near future.

"And he's clearly broken that promise. That's why what happens in the next three months is very hard to see, and it's quite opaque."

The additional tariffs are likely to have a significant impact on China's economy," said Pepperstone's head of research Chris Weston.

"Most [economists] estimate the new tax will reduce China's exports by around 2.5-2.7 per cent, and act as a headwind by some 50 basis points to growth, with an unwelcomed negative impact on employment."