German and French markets were hit hard once again, with auto stocks leading the fall as investors sold off the likes of premium carmakers Daimler, BMW and Volkswagen on China exposure fears. Luxury goods brands also fell, with Louis Vuitton parent group LVMH down 3.6 percent.
U.S. stocks opened sharply lower on Wednesday as a second day of decline in the yuan against the dollar increased concerns about global growth. The Dow Jones industrial average quickly fell 150 points in the open, extending Tuesday's 212-point loss.
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The People's Bank of China allowed its currency to devalue for a second day in a row on Wednesday, cutting the daily peg which the yuan trades against the U.S. dollar by 1.6 percent, even after pledging that its unexpected move on Tuesday was a "one-off depreciation".
In the final moments of trade in Chinese market, the central bank moved to stem the fall in the currency by buying the yuan, foreign exchange traders said, according to reports.
The yuan fell to 6.4510 against the dollar, its weakest since August 2011, after China set its "daily fix" at 6.3306, even lower than Tuesday's cut to the daily currency peg.
The PBoC told state-owned banks to sell dollars on its behalf in the last 15 minutes of Wednesday's trading, causing the yuan to jump about 1 percent against the greenback, reports said.