Stock markets around the world fell hard and the Chinese yuan weakened to an 11-year low on Monday as fears of an escalation in the US-China trade war jolted financial markets.

China on Monday let the yuan tumble beyond the key 7-per-dollar level for the first time in more than a decade, in a sign Beijing might be willing to tolerate further currency weakness in the face of an escalating trade row with the United States.

Safe-haven assets, including the Japanese yen, government bonds and gold rallied as investors sought to cut back on riskier assets.

"I think there's a sense that President Trump might try and escalate in terms of a reaction, if he thinks that this was a deliberate move by the Chinese to try and weaken their currency artificially,” said Brian Daingerfield, head of G10 fx strategy for the Americas at NatWest Markets in Connecticut.

Against the Japanese yen, which investors tend to buy in times of risk aversion, the US dollar fell 0.38 per cent to its lowest since a January flash crash.

The sharp moves in financial markets come after US President Donald Trump stunned investors last week by vowing to impose 10 per cent tariffs on the remaining $300 billion of Chinese imports from September 1, abruptly breaking a brief month-long ceasefire in the bruising trade war.

On Monday, MSCI's All Country World Index, which tracks shares in 47 countries, extended its slide from last week to dip 1.89 per cent on the day, close to a two-month low.

On Wall Street, the main indexes fell sharply led by technology companies.

"Trade continues to trend in the wrong direction," said Ryan Detrick, senior market strategist for LPL Financial in Charlotte, North Carolina.

"Any hopes of a quick resolution with China are fading quickly."

The Dow Jones Industrial Average fell 489.78 points, or 1.85 per cent, to 25,995.23, the S&P 500 lost 55.68 points, or 1.90 per cent, to 2,876.37 and the Nasdaq Composite dropped 200.40 points, or 2.5 per cent, to 7,803.67.

The pan-European STOXX 600 index fell 2.13 per cent, putting it on pace for its largest two-day decline in over three years.

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

"The escalation of trade measures only reinforces concerns over global economic growth and hence by extension global oil demand growth," said Harry Tchilinguirian, global oil strategist at BNP Paribas in London.

Brent crude futures were down $1.53, or 2.47 per cent, to $60.36 per barrel, while US West Texas Intermediate (WTI) crude futures were down 0.97 cents, or 1.74 per cent, to $54.69 a barrel.

Concerns about the outlook for trade lifted gold to a more than six-year high on Monday. Spot gold was up 1.12 per cent at $1,456.55 per ounce.

US Treasury yields tumbled on Monday with 10-year yields hitting their lowest level since November 2016, as fears over escalation of trade U.S.-Chinese tensions renewed concerns about an economic downturn, spurring safe-haven demand for bonds.

The yields on benchmark 10-year Treasury notes were down 8.8 basis points at 1.7667 per cent.