China's shock 2% devaluation of the Yuan pushed the dollar higher and raised the prospect of a new round of currency wars, just as Greece reached a new deal to contain its debt crisis. Stocks fell in Asia and Europe as investors worried about the implications of a move designed to support China's slowing economy and exports.
The stronger dollar hit commodity prices, driving crude oil down after Monday's hefty gains.
Weaker stocks lifted top-rated bonds, with yields on Euro zone debt also falling on the Greek deal, struck nine days before Athens is due to repay 3.2 billion Euros to the European Central Bank.
China's move, which the central bank described as a one-off depreciation based on a new way of managing the exchange rate that better reflected market forces, triggered the Yuan's biggest fall since 1994, pushing it to its lowest level against the dollar in almost three years.
The devaluation followed weekend data that showed China's exports tumbled 8.3% in July, hit by weaker demand from Europe, the United States and Japan, and that producer prices were well into their fourth year of deflation.
The Australian dollar, often used as a liquid proxy for the Yuan, fell 1.1% to $0.7324 as the US dollar rose 0.4% against a basket of currencies before paring gains.
In Asia, the Singapore dollar hit a five-year low while the Malaysian ringgit and the Indonesian rupiah hit lows not seen since the Asian financial crisis 17 years ago. The Japanese yen hit a two-month low of 125.08 to the U.S. dollar.