Wall Street has suffered its worst trading day of the year, with the Dow Jones index plunging 768 points.

Key points: Technology companies and banks were hit hardest

Technology companies and banks were hit hardest It was a similar situation in European markets, with London's FTSE and Germany's DAX also dropping

It was a similar situation in European markets, with London's FTSE and Germany's DAX also dropping The global sell-off will spread to the Australian share market when it opens

This was after China retaliated against the United States in their ongoing trade war — by devaluing the yuan to its lowest level in more than a decade.

The Chinese currency tumbled beyond the key 7-per-US-dollar (7 yuan-per-$1.46) threshold.

Market analysts said Beijing's latest move was payback against the United States — after President Donald Trump vowed last week to impose 10 per cent tariffs on the remaining $US300 billion of Chinese imports ($443.6 billion) from September 1.

It is also a way for China to make its exports cheaper, partially offsetting the harmful impact of US tariffs.

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.

Market snapshot at 7:50am (AEST): ASX SPI futures -1.6pc at 6,460, ASX 200 (Monday's close) -1.9pc at 6,640

ASX SPI futures -1.6pc at 6,460, ASX 200 (Monday's close) -1.9pc at 6,640 AUD: 67.57 US cents, 55.7 British pence, 60.3 euro cents, 71.7 Japanese yen, $NZ1.03

AUD: 67.57 US cents, 55.7 British pence, 60.3 euro cents, 71.7 Japanese yen, $NZ1.03 US: Dow Jones -2.9pc at 25,718, S&P 500 -3pc at 2,845, Nasdaq -3.5pc at 7,726

US: Dow Jones -2.9pc at 25,718, S&P 500 -3pc at 2,845, Nasdaq -3.5pc at 7,726 Europe: FTSE 100 -2.5pc at 7,224, DAX -1.8pc at 11,659, CAC -2.2pc at 5,242, Euro Stoxx 500 -1.9pc at 3,311

Europe: FTSE 100 -2.5pc at 7,224, DAX -1.8pc at 11,659, CAC -2.2pc at 5,242, Euro Stoxx 500 -1.9pc at 3,311 Commodities: Brent crude -3pc at $US60.05/barrel, spot gold +1.6pc at $US1,464/ounce, iron ore -6.6pc at $US100.56/tonne

Mr 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.

"It's called "currency manipulation." Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!"

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Mr 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 markets panic on on trade war escalation

The Dow Jones Industrial Average closed 2.9 per cent lower at 25,718.

At its worst point, earlier in the day, the Dow had plunged by more than 960 points.

The benchmark S&P 500 dropped 3 per cent to 2,845, while the tech-heavy Nasdaq fell 3.5 per cent to 7,726.

US technology companies and banks were hit hardest, with Apple (-5.2pc) and Bank of America (-4.4pc) posting heavy losses.

It was a similar situation in European markets, with London's FTSE dropping 2.5 per cent and Germany's DAX losing 1.8 per cent

"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 NAB senior foreign exchange strategist Rodrigo Catril.

"Assuming Trump does not row back from new tariffs ... [a] lower Australian and New Zealand dollar forecast is warranted."

ASX to fall sharply, Aussie dollar nears decade lows

The global sell-off will spread to the Australian share market when it opens.

ASX futures indicate the local market is set to fall by a steep 1.5 per cent in early trade.

The Australian dollar, meanwhile, had slipped further (-0.6pc) to 67.57 US cents by 7:30am (AEST), within a whisker of its decade low of 67.41 US cents set in a flash crash earlier this year on January 3.

But its steepest falls were against the European and Japanese currencies — down 1.1 per cent to 71.7 yen, and dropping by a sharper 1.3 per cent to 60.35 euro cents.

On the flipside, the Australian dollar has risen strongly (+1.3pc) against the devalued Chinese currency, and is buying 4.78 yuan.

In local economic news, the Reserve Bank will meet today to discuss the latest risks to the economy.

The RBA is widely expected to keep interest rates on hold at 2.30pm (AEST), having already cut rates to historic lows twice in the last two months.

Trade war hits commodity prices

Worries about a slowdown in global growth due to an extended trade conflict also hurt oil prices.

Brent crude futures dropped by $US1.84, or 3 per cent, to $US60.05 per barrel.

"The escalation in the US-China trade is another negative for the oil demand outlook, as the fallout from the spat continues to greatly impact the Asian economic region, which is key to the oil demand outlook," said John Kilduff, partner at Again Capital Management.

Mr Trump complained that Chinese trade negotiators had not held up their end of the bargain. ( AP: Andrew Harnik )

A key Chinese iron ore spot price tumbled 6.7 per cent to $US105 per tonne.

Safe-haven assets, meanwhile, surged as investors cut back on riskier assets.

Spot gold rose to more than a six-year high, lifting 1.6 per cent to $US1,464.64 an ounce.

US Treasury yields tumbled, with 10-year yields hitting their lowest level since November 2016, on the safety bid.

The yields on benchmark 10-year Treasury notes were down 12.56 basis points at 1.7294 per cent.

ABC/wires