Global stocks tumble after China lets yuan sink

A man walks past an electronic stock board showing Japan's stock prices at a securities firm in Tokyo Monday, Aug. 5, 2019. Asian stock markets fell for a third day Monday after China allowed its yuan to sink to its lowest level this year following President Donald Trump's latest tariff threat.(AP Photo/Eugene Hoshiko)
A man walks past an electronic stock board showing Japan's Nikkei 225 index at a securities firm in Tokyo Monday, Aug. 5, 2019. Asian stock markets fell for a third day Monday after China allowed its yuan to sink to its lowest level this year following President Donald Trump's latest tariff threat.(AP Photo/Eugene Hoshiko)
An elderly man looks at an electronic board showing Hong Kong composite index outside a bank in Hong Kong, Monday, Aug. 5, 2019. Asian stock markets fell for a third day Monday after China allowed its yuan to sink to its lowest level this year following U.S. President Donald Trump's latest tariff threat. (AP Photo/Kin Cheung)
A man uses his smartphone walks by an electronic board showing Hong Kong composite index outside a bank in Hong Kong, Monday, Aug. 5, 2019. Asian stock markets fell for a third day Monday after China allowed its yuan to sink to its lowest level this year following U.S. President Donald Trump's latest tariff threat. (AP Photo/Kin Cheung)
Office workers walk past an electronic board showing shares prices at the financial district in Hong Kong, Monday, Aug. 5, 2019. Asian stock markets fell for a third day Monday after China allowed its yuan to sink to its lowest level this year following President Donald Trump's latest tariff threat. (AP Photo/Kin Cheung)
A man walks past an electronic stock board showing Japan's Nikkei 225 index at a securities firm in Tokyo Monday, Aug. 5, 2019. Asian stock markets fell for a third day Monday after China allowed its yuan to sink to its lowest level this year following President Donald Trump's latest tariff threat.(AP Photo/Eugene Hoshiko)
A man with a parasol walks past an electronic stock board showing Japan's Nikkei 225 index at a securities firm in Tokyo Monday, Aug. 5, 2019. Asian stock markets fell for a third day Monday after China allowed its yuan to sink to its lowest level this year following President Donald Trump's latest tariff threat.(AP Photo/Eugene Hoshiko)

BEIJING — Global stock markets fell Monday after China allowed its yuan to sink to an 11-year low, fueling concern Beijing might use its currency as a weapon in a tariff war with President Donald Trump.

Market benchmarks in London and Paris fell 2% in early trading while Tokyo closed down 1.6%. Hong Kong declined 2.9% and Frankfurt, Shanghai and Sydney also retreated.

China's central bank allowed the yuan's exchange rate to sink below the politically sensitive level of seven to the U.S. dollar. That level has no economic significance but might fuel trade tension with Washington, which complains a weak currency swells Chinese exports and hurts foreign competitors.

"Markets will brace for trade tensions to boil," said Vishnua Varathan of Mizuho Bank in a report.

The People's Bank of China blamed the decline on "trade protectionism," a reference to Trump's tariff hikes in a fight over Beijing's trade surplus and technology policies. Trump rattled financial markets with a threat Thursday to raise duties on additional Chinese imports.

Beijing appears to have decided "the currency is now also considered part of the arsenal to be drawn upon," said Robert Carnell of ING in a report.

London's FTSE 100 fell to 7,257.86 and Frankfurt's DAX lost 1.6% to 11,682.79. France's CAC-40 declined to 5,249.86.

Tokyo's Nikkei 225 fell to 20,720.29 and Hong Kong's Hang Seng declined to 26,151.32. Seoul's Kospi was 2.6% lower at 1,946.98.

The Shanghai Composite Index dropped 1.6% to 2,821.50 and Sydney's S&P-ASX 200 retreated 1.9% to 6,640.30. India's Sensex lost 1.5% to 36,576.42. New Zealand, Taiwan and Southeast Asian markets declined.

Traders also were watching Hong Kong, a major trading center where airline flights and traffic were disrupted by protesters' calls for a general strike over complaints about a proposed extradition law and other grievances.

On Wall Street, futures for the Standard & Poor's 500 and the Dow Jones Average lost 1.3%.

On Friday, the S&P 500 lost 0.7% and the Dow dropped 0.4%. The Nasdaq composite shed 1.3%.

Despite that, the major indexes are all up solidly this year, led by the Nasdaq's 20.6% gain. The S&P 500 is up nearly 17%.

Trade tension and uncertainty over the outlook for American interest rates have blotted out a better-than-expected results season. Earnings for S&P 500 companies are on pace for a drop of 1% from a year ago, better than the 3% analysts expected.

U.S. employment data Friday were in line with expectations but Trump's threat of new tariff hikes "renders backward-looking data comfort irrelevant," said Varathan of Mizuho Bank.

ENERGY: Benchmark U.S. crude lost 85 cents to $54.81 per barrel in electronic trading on the New York Mercantile Exchange. The contract gained $1.71 on Thursday to close at $56.66. Brent crude, used to price international oils, shed 95 cents to $60.94 in London. It gained $1.39 the previous session to $61.89.

CURRENCY: The dollar dropped to 105.99 yen from Friday's 106.59 yen. The euro gained to $1.1141 from $1.1109.

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