European equities tumbled to close sharply lower on Tuesday, amid the surprise news that China has allowed a "one-time" depreciation of its currency against the U.S. dollar, causing the currency to suffer its biggest fall in over two decades.
The People's Bank of China (PBoC) devalued the yuan by almost 2 percent against the greenback sending shockwaves through markets, as currencies with heavy trade exposure to China hit lows against the U.S. dollar and equities on both sides of the Atlantic tanked. Commodities were hit hardest, as oil and industrial metals faced severe selling.
The pan-European FTSEurofirst 300 ended around 1.7 percent lower after extending losses throughout the session.
Germany's DAX took the brunt of the selling in Europe, tanking around 2.75 percent after the ZEW Institute's economic sentiment index came in at 25 points, falling from the 29.7 recorded in the previous month. The survey is a gauge of analyst and investor mood in the euro zone's largest economy. A separate indicator of current conditions however, rose from 63.9 points in July to 65.7 points this month.
U.S. stocks traded around 1 percent lower on Tuesday after an unexpected move overnight by the central bank.
The central bank cut the renminbi's daily peg against the U.S. dollar to 6.2298 renminbi, down from 6.1162 on Monday, describing the unexpected move as a "one-off depreciation". But market watchers have widely interpreted it as the first of many moves to help restore competitiveness in the Chinese economy by weakening the currency.
In a statement, the Chinese central bank said that it had changed the way it calculated the currency's daily midpoint against the greenback, now taking the midpoint from market-makers quotes and the previous day's closing price. The move comes after recent data showed a drop in Chinese exports.
Brent crude tumbled $1.49 to trade at $48.91, erasing most of the gains made in oil's biggest daily rally since late May the previous session,while U.S. crude plunged as much as 4.2 percent to $43.31, edging closer to its 2015 low of $42.03
Three-month nickel and copper both slumped in the region of 3 percent on the London Metal Exchange.
Elsewhere, earnings season is winding down in Europe but a few companies still reported results Tuesday.
Shares in Delta Lloyd plunged over 20 percent after the Dutch insurer swung to a net loss in the first half of the year.
Luxury goods makers including LVMH, Swatch Group and Burberry as well as carmakers such as BMW and Daimler were all in negative territory as a result of the yuan devaluation, given the importance of the China to these firms.
Greece and its lenders, who have been negotiating the finer details of the country's third bailout package, have reached a deal on the country's final fiscal targets, a Greek Finance Ministry official told CNBC.
"The negotiations were completed this morning, there are some minor details left but it's nothing special. These details do not affect the completion of the deal," the official said on Tuesday.
Greek shares were up around 2 percent, however pared gains to trade 1 percent higher in mid-afternoon.