Stocks plunged on Monday after the U.S. and China ratcheted up their trade war, with China letting its currency drop to an 11-year low.



The Dow lost 766 points, or 2.9%, for the day, although it had tumbled as steeply as 900 points in the afternoon.



If the U.S. goes through with threatened tariffs Sept. 1, it will tax essentially everything imported from China.



Stocks plummeted on Monday after China escalated its trade battle with the U.S. by letting its currency sink to an 11-year low. The move prompted a rebuke from President Trump, who in tweet accused the Chinese government of currency manipulation.

All three major U.S. stock indexes lost close to 3% or more in the worst single day of trading in 2019. The Dow, which opened 400 points lower, was down 766 points, or around 2.9%, trading at 25,725.56 come the close at 4:00 p.m. Eastern Time. The S&P 500 stock index fell about 3% to 2,844, while the Nasdaq composite fell 3.4% to 7,726.

The sharp slide, coming after the worst week for stocks this year, is a response to the escalating trade war between the U.S. and China. After Mr. Trump last week announced surprise tariffs on $300 billion of Chinese imports, China responded by allowing the yuan's exchange rate to sink below the politically sensitive level of seven per dollar.

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A cheaper yuan makes Chinese imports less costly for Americans, essentially undoing the effects of a tariff. Mr. Trump lashed out against the move on Twitter, accusing China of "currency manipulation."

China dropped the price of their currency to an almost a historic low. It’s called “currency manipulation.” Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time! — Donald J. Trump (@realDonaldTrump) August 5, 2019

Industrial and financial stocks posted the biggest drops early Monday. Apple fell 5.2% and Microsoft dropped 3.4%. Bank of America lost 4.4%. European and Asian markets were also sharply lower.

Every sector in the S&P 500 fell, although utilities only saw modest losses. The sector is considered a safer investment in times of economic uncertainty and a slowdown in growth.

Investors fled to less risky holdings.The yield on the 10-year Treasury note, which rises with expectations of stronger economic growth and inflation, fell to its lowest level since Trump's 2016 election energized markets, down to 1.73% from 1.85% late Friday. The yield on the 2-year note sank to 1.58% from 1.71% a day earlier. Both are unusually large moves.

If the Trump administration proceeds with a 10% tax on Chinese goods starting Sept. 1, the U.S. will have hiked tariffs on essentially all goods from the country. China imports fewer U.S. products, which is why it's turning to non-tariff measures to respond to the White House's protectionist trade policies.

"The upshot is that China has few good options with which to directly hit back at the U.S.," Capital Economics' Julian Evans-Pritchard said in a report. "As such, policymakers are likely to focus on broader measures to offset the drag from tariffs. We expect them to allow further currency depreciation, which will to shore up export revenues."