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Wall Street under pressure after China weakens currency

U.S. stock index futures indicated a sharply lower open on Tuesday after the People's Bank of China (PBoC) allowed the yuan to depreciate almost 2 percent against the U.S. dollar, pushing the currency to suffer its biggest fall in over two decades.

The central bank's surprising move, which it described as a "one-off depreciation" moved the renminbi's daily peg against the dollar from 6.2298 renminbi against the U.S. dollar, down from 6.1162 on Monday.

Read MorePBOC sharply cuts yuan against US dollar after weak data

The move sent shock waves through currency markets, with analysts seeing the move as the latest aggressive step in the so-called global currency wars.

"Over the last two years, since the Taper Tantrum summer, the yuan has dropped 3 percent against the dollar, but the yen's fallen 23 percent, the Euro 18 percent, and other Asian currencies have fallen by between 5 percent and 25 percent," said Kit Juckes, global head of foreign exchange strategy at Societe Generale.

"Relative to those moves, the Chinese adjustment is a token move that won't do anything to stop the economic slowdown. Whether or not the PBoC intends this to be the start of a series of steps towards a more competitive currency, the domino effect to weaker commodity prices and weaker currencies across EM and resource exporters will be hard to stop," he added.

Traders work on the floor of the New York Stock Exchange.
Lucas Jackson | Reuters
Traders work on the floor of the New York Stock Exchange.

Dow futures were sharply lower, off about 150 points. U.S. stocks closed higher on Monday, boosted by a recovery in oil prices and a Warren Buffett acquisition.

European stocks traded lower, with the French CAC and the German DAX both down over 1 percent after the news.

Markets will also be digesting the unexpected news from Google which announced after the close Monday that it will become part of a new publicly traded entity called Alphabet. Shares will still trade under the tickers GOOGL and GOOG. Both classes of the stock jumped more than 6 percent in after-hours trade.

On the data front, preliminary second quarter productivity was up at an annual rate of 1.3 percent, while unit labor costs were up 0.5 percent.

Wholesale trade data is due at 10:00 a.m. ET

Earnings from and Red Robin Gourmet Burgers are due before market open. Towers Watson reported quarterly results that beat expectations on both the top and bottom line.

Read More Early movers: GOOG, SYMC, GPS, SHAK, KHC, RAX, HTZ, FB & more

Computer Sciences, Symantec, Cree and Cyber Ark Software will report after the bell.

Oil will likely remain a major factor for markets after dollar weakness and a refinery outage helped crude rally nearly 2.5 percent from a near five-month low early Monday. Brent crude was down about 90 cents at $49.52, while U.S. crude fell $1.10 to trade at $43.86.

Back in Europe, 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 outperformed the rest of Europe, gaining close to 2 percent.