Beijing had been expected to stop the yuan hitting the psychologically important level, but allowed it to hit an 11-year low in its onshore market.
That you can get more than seven Chinese yuan to the dollar for the first time since 2008 was always going to be a red rag to the White House bull in the escalating economic battle between Washington and China.
Two million tonnes of US soybeans destined for China will be loaded in August, followed by another 300,000 tonnes in September.
The tumble exacerbated losses in Asia's financial markets. The latest round of tariffs on Chinese goods would cost US households an average of $200 a year, some economists estimate, and would start to bite consumers and retailers just as the holiday shopping season begins.
"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 CT.
The escalations in the trade war between the world's largest economies are rattling investors already unnerved about a slowing global economy, falling USA corporate profits and possibly too-weak inflation.
Beijing appears to have decided 'the currency is now also considered part of the arsenal to be drawn upon, ' said Robert Carnell, analyst at bank ING.
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Trade bellwethers Caterpillar and Boeing dropped 3 percent and 2.3 percent, respectively, while semiconductor stocks like Micron Technology, Skyworks Solutions and Advanced Micro Devices fell by at least 4 percent.
The French CAC 40 tumbled 1.96% at the open.
Tokyo's Nikkei 225 fell to 20,641.25 and Hong Kong's Hang Seng fell to 26,140.47. Seoul's Kospi was 2.6% lower at 1,946.98. In China, the benchmark Shanghai Composite Index .SSEC lost 1.62% for its weakest close since February 22, and stock market losses spread rapidly around the world.
China's central bank sets the exchange rate each morning and allows the yuan to fluctuate by 2% against the dollar during the day.
Declining issues outnumbered advancers for a 7.11-to-1 ratio on the NYSE and for a 7.20-to-1 ratio on the Nasdaq. The S&P 500 is up almost 17%.
Trade tension and uncertainty over the outlook for American interest rates have blotted out a better-than-expected corporate earnings results.
China soymeal futures DSMcv1 rose more than 2% and Dalian iron ore futures DCIOcv1 dropped, hitting their weakest level since July, while London copper slumped to its lowest in over two years.
ENERGY: Benchmark U.S. crude lost 52 cents to $55.14 per barrel in electronic trading on the New York Mercantile Exchange. Brent crude, used to price global oils, shed 72 cents to $61.17 in London.