US stocks suffered their worst day of the year as China devalued its currency in a move condemned as a “major violation” by a furious Donald Trump.

The Dow closed down 767.27 points, or 2.9%. The S&P 500 dropped about 3%, its biggest one-day decline since December, representing a paper loss of $766 billion, according to Refinitiv data. The Nadaq Composite was down 278.03 points, or 3.47%.

It came as the yuan was weakened to its lowest level in 11 years, in what was interpreted as an escalation in the trade war between China and the US.

At the same time, China’s commerce ministry said companies had stopped buying US agricultural products and that Beijing would not rule out imposing tariffs on American farming products purchased after August 3.

China’s actions follow President Trump’s announcement of 10% tariffs on an extra $300 billion of Chinese imports.

Mr Trump tweeted that the devaluation represented a “currency manipulation” and a “major violation”.

The treasury department said that China was manipulating its currency and said it would engage with the International Monetary Fund to eliminate unfair competition from Beijing.

The last time the US named China as a currency manipulator was in 1994.

Steven DeSanctis, equity strategist at Jefferies in New York, said: "It's the escalation of the trade war. The dollar strengthening presents another issue. For companies that do a lot of business outside the US, it all adds up."

Apple Inc shares dropped 5.2% as analysts warned that the newly proposed tariffs may hurt demand for the iPhone, while the Philadelphia semiconductor index dropped 4.4%.

The dollar fell to a two-week low against the euro following the treasury statement.