U.S. stocks closed lower by about 1 percent on Tuesday after an unexpected move overnight by the People's Bank of China to depreciate the yuan by nearly 2 percent. (Tweet This)

"The major concern is, the prospect of a China hard landing is more ominous as far as its impact on global growth," said Eric Wiegand, senior portfolio manager at U.S. Bank's Private Client Reserve.

The Dow Jones industrial average closed about 210 points lower, wiping out most of Monday's gains. The index's 50-day moving average fell below its 200-day moving average, a bearish condition many analysts term a "death cross."

Apple plunged more than 5 percent and Caterpillar fell more than 2.5 percent to lead declines. Analysts cited concerns about the negative impact of a China economic slowdown on those two firms.

On Monday, the same two stocks led the blue chip index higher to snap its first seven-day losing streak in four years with a 241-point rise.



"Yesterday's rally was a relatively poor rally, just a bounceback in oversold (stocks), not new leadership," said Bruce McCain, chief investment strategist at Key Private Bank.

Biotech stocks and Apple outweighed Google's 4 percent jump to pressure the Nasdaq Composite off 1.2 percent.

Read More5 ways China's devaluation could shake up the markets

Renewed concerns about a deeper slowdown in the world's second-largest economy increased negative sentiment.

It's the "interpretation that the U.S. dollar is going to further strengthen against the Chinese yuan and be a further headwind against U.S. multinationals," said Mark Luschini, chief investment strategist at Janney Montgomery Scott.

"I'm a little surprised (China) did this because they had plenty of room to cut interest rates," Luschini said.

The drop in the daily peg to 6.2298 renminbi against the U.S. dollar, down from 6.1162 on Monday, was the largest one-day move in more than two decades and took the currency back to levels from three years ago. The central bank described the decision as a "one-off depreciation."



"I think the market's perception is if China is doing that they're really worried about their economy," said Jason Leinwand, managing director at Riverside Risk Advisors. "Any currencies that have direct ties with China will be weakened."

The U.S. dollar index traded mildly higher, while the euro held above $1.10 on a bailout deal between Greece and its creditors. The yen was weaker against the dollar, near 125 yen.

European stocks closed sharply lower, with the German DAX off more than 2.5 percent, on the yuan move. Asian stocks ended mostly lower, with the Shanghai Composite flat.

"This news is negative for exporters (such as automakers) and luxury goods makers as well as other companies that derive foreign exchange revenue from China and other parts of Asia," said Ilya Feygin, senior strategist at WallachBeth Capital.

He noted that the currency instability benefits Treasurys and gold.

Treasury yields fell as traders piled into dollar-denominated assets, with the 10-year yield briefly hitting its lowest level since June 1 before trading near 2.14 percent and the at 0.67 percent.

The Treasury Department auctioned $24 billion of 3-year notes at a high yield of 1.013 percent at 1:00 p.m. ET.



Gold rallied on Monday to its highest level since the end of June. Gold futures held near $1,110 an ounce in afternoon trade.



Investors also watched Google, which unexpectedly announced after the close Monday that it will become part of a new publicly traded entity called Alphabet. Shares will still trade under the tickers GOOGL and GOOG. Class A shares closed up 4.1 percent.



Read MoreGoogle's abc.xyz just put this guy on the map