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Panic As America-China Trade War Sparks Major Market Decline

Wall Street's major indexes have posted their biggest percentage drop of the year due to a fall in the Yuan after US President Donald Trump vowed to impose additional tariffs on Chinese goods.

This sparked fears of further escalation in the U.S.-China trade war.

While stocks pared losses in the last hour of trading on Monday to finish off their session lows, the benchmark S&P 500 fell about three percent to notch its biggest one-day percentage decline since December 4. The index has fallen for six straight sessions and is now about six percent below its record closing high on July 26.

The Yuan weakened past the seven-per-U.S. dollar level, its lowest in 11 years, after the People's Bank of China, with the blessing of policymakers, set its daily midpoint at the weakest level in eight months.

READ MORE: 'Back On Track': China And U.S. Agree To Restart Trade Talks

Wall Street dropped majorly on Monday. Photo: Getty Images.

On Twitter, Trump called the action a "major violation" and "currency manipulation".

Several investors viewed the move in the Yuan as a direct response to Trump's announcement of 10 percent tariffs on an additional $US300 billion ($A443 billion) of Chinese imports.

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

A weaker Yuan and a stronger U.S. Dollar pose challenges for U.S. companies that do substantial business in China by effectively raising the cost of their goods for Chinese customers.

Adding to the tensions, China's commerce ministry said Chinese companies have stopped buying U.S. agricultural products and that China will not rule out imposing import tariffs on U.S. farm products that were bought after August 3.

Shares of S&P 500 technology companies, which are heavily exposed to Chinese markets, dropped 4.1 percent.

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

READ MORE: What A Trade War Between China and The US Means For Australia

Donald Trump with Chinese leader Xi Jingping in Osaka in 2019.Photo: Getty Images.

Stocks could slide further if there are no signs of improvement in U.S.-China trade relations before September when the recently announced tariffs are to take effect, said Keith Lerner, chief market strategist at SunTrust Advisory Services in Atlanta.

"There's a little bit of a vacuum in the market for the next several weeks," he said. "We're in this corrective phase, and it likely has further to go."

The Dow Jones Industrial Average on Monday fell 767.27 points, or 2.9 percent, to 25,717.74; the S&P 500 lost 87.31 points, or 2.98 percent, to 2,844.74; and the Nasdaq Composite dropped 278.03 points, or 3.47 percent, to 7,726.04.

The Cboe Volatility Index, an options-based gauge of investor anxiety, rose 6.98 points to 24.59, its highest in about seven months.

New York Stock Exchange
The markets recorded the biggest drop this year. Photo: Getty Images.

Top U.S. meat processor Tyson Foods was one bright spot. Its shares rose 5.1 percent after the company beat quarterly profit estimates.

Declining issues outnumbered advancing ones on the NYSE by a 6.36-to-1 ratio; on Nasdaq, a 6.46-to-1 ratio favoured decliners.

The S&P 500 posted three new 52-week highs and 32 new lows; the Nasdaq Composite recorded 13 new highs and 280 new lows.

Volume on U.S. exchanges was 9.41 billion shares compared with the 6.8 billion average for the full session over the last 20 trading days.