Global stocks sink as China currency drops

TOKYO - Global stocks sank Wednesday as China let its currency fall for a second day following a surprise devaluation that rattled global financial markets.

China's government said the devaluation of the yuan was part of reforms meant to make its exchange rate more market-oriented. But the decision has added to worries over slowing growth in the world's second-largest economy and that Western companies might find it harder to sell their goods there.

The Chinese yuan's market rate fell 1.8 percent after Tuesday's nearly 2 percent decline, which was the biggest drop in a decade. Germany's DAX dropped 2.4 percent to 11,025.72 and Britain's FTSE 100 lost 1.2 percent to 6,588.08. France's CAC 40 shed 2.2 percent to 4,985.63. Wall Street looked poised for further losses, with both Dow and S&P futures down 0.9 percent.

"Markets were not expecting any major moves on the currency from the Chinese government, despite its benefits, as the risks were perceived as too high. Now that this Rubicon has been crossed, keen attention should be paid to any other significant moves to prop up the Chinese economy," Angus Nicholson, a market analyst at IG, said in a commentary.

Japan's Nikkei 225 fell 1.6 percent to 20,392.77 and Hong Kong's Hang Seng dropped 2.4 percent to 23,902.51. South Korea's Kospi lost 0.6 percent to 1,975.47 and Australia's S&P/ASX 200 slipped 1.7 percent to 5,382.10. The Shanghai Composite Index fell 1.1 percent to 3,886.32, and shares in Southeast Asia were also lower.

The International Monetary Fund welcomed Beijing's move toward more flexible exchange rates, but many investors saw it as an attempt to stimulate a slowing economy, since a cheaper yuan will benefit China's exports by making them less expensive overseas. The devaluation triggered selling of shares, oil and other commodities on expectations of weaker demand from China.

Vietnam doubled the trading band of its currency Wednesday to 2 percent allow it to weaken following China's devaluation. The State Bank of Vietnam said the weaker Chinese currency would have a "negative impact" on its economy. But analysts said the move was unlikely to spur competitive devaluations and would have only a modest impact.