(CNN) -- Stocks in Asia were down across the board for a second day on Tuesday as the US-China trade war reached a fever pitch.
The sell-off began Monday when the Chinese government let the yuan fall below its 7-to-1 ratio with the US dollar for the first time in a decade. US markets went on to suffer some of their biggest drops of the year. The Trump administration later labeled China a "currency manipulator."
Hong Kong's Hang Seng Index, Japan's Nikkei, mainland China's Shanghai Composite Index and Taiwan's Taiex fell more than 2% in early trading Tuesday after the People's Bank of China allowed the yuan to drop to its lowest level in 11 years.
Stocks recovered a little as the Chinese currency rebounded from earlier lows.
The yuan jumped Tuesday around noon — recouping some of its previous declines after the Chinese central bank announced plans to issue 30 billion yuan worth of central bank bills in Hong Kong next week. The bills drain yuan out of the market and push up interest rates, making it more expensive for investors to bet on a weaker currency.
"The bill sales in Hong Kong are part of regular issuance, but the amount is larger than needed to simply replace maturing bills, so should provide some boost to short term Chinese rates, and thereby to the yuan," said Robert Carnell, chief economist and head of research in Asia Pacific at ING.
In mainland China, the yuan is changing hands at about 7.04 to the dollar. Outside of China, where the yuan trades more freely, one dollar buys about 7.07 yuan. Both rates have rebounded following weakness in the morning.
On Tuesday, the People's Bank of China fixed the currency at its weakest level in 11 years. The central bank's cut to the yuan's reference rate — a "band" it sets every day to curb how far up or down the yuan's value can move — was also the deepest in more than a year.
The yuan's daily reference rate Tuesday of 6.9683 to the US dollar is the currency's lowest since May 2008, during the global financial crisis.
China said Monday's devaluation reflected pressure on the exchange rate stemming from the US decision last week to impose new tariffs on Chinese exports.
Yi Gang, Governor of the Chinese central bank, said in a statement Monday night that China would "not engage in competitive devaluation, and not use the exchange rate for competitive purposes and not use the exchange rate as a tool to deal with external disturbances such as trade disputes."
The next move is now up to the United States, Carnell said.
"We now have to wait to see how the US President views today's move, as it looks like he is personally taking control of US trade policy," Carnell said. He added the United States could respond by increasing the 10% tariff that Trump recently announced on $300 billion worth of Chinese goods to 25% — a further escalation of an already intense trade war.
Analysts fear the United States and China may be headed for a currency war.
"Continued yuan depreciation should be expected, albeit in a staggered pace. Beijing is likely to tolerate further weakness and we could see another 5% before the end of the year," said Edward Moya, New York-based senior market analyst at Oanda. "The US is likely to counter the breach of the critical 7 level to the dollar with verbal intervention. Currency wars are taking center stage. "
Here are some of the other big moves on Asian markets at 2:00 p.m. Hong Kong time.
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