Dow Jones Industrial Average Plunges 200 Points After China's Surprise Yuan Devaluation

UPDATE 4 p.m. EDT:

U.S. stocks closed sharply lower Tuesday, with the Dow Jones Industrial Average tumbling more than 200 points to finish in the red for the eighth time in the last nine trading sessions. Sentiment on Wall Street waned after China surprised investors and depreciated the yuan to revive its slowing economy. The move is creating uncertainty around an expected U.S. Federal Reserve’s interest rate hike this year.

The Dow Jones Industrial Average (INDEXDJX:.DJI) tumbled 212.33 points, or 1.21 percent, to close at 17,402.84. The S&P 500 index (INDEXSP:.INX) lost 20.11 points, or 0.96 percent, to end at 2,084.07. And the Nasdaq composite (INDEXNASDAQ:.IXIC) dropped 65.01 points, or 1.27 percent, to finish at 5,036.79.

Original story: U.S. stocks traded sharply lower Tuesday, with the Dow Jones Industrial Average tumbling nearly 200 points after China unexpectedly depreciated the yuan by nearly 2 percent in an attempt to jumpstart its flagging economy. Eight of the 10 Standard & Poor's 500 sectors traded lower, led by declines in energy and materials, which sank nearly 2 percent.

The Dow Jones Industrial Average (INDEXDJX:.DJI) tumbled 206.79 points, or 1.17 percent, to 17,408.38. The S&P 500 index (INDEXSP:.INX) lost 17.81 points, or 0.85 percent, to 2,085.69. And the Nasdaq composite (INDEXNASDAQ:.IXIC) dropped 44.92 points, or 0.88 percent, to 5,056.71.

China's central bank devalued its tightly controlled currency Tuesday as the People's Bank of China allowed the yuan to depreciate 1.9 percent against the U.S. dollar, marking the biggest one-day loss in the yuan since 2005.

Economists say the devaluation will make Chinese-made goods less expensive, and imports to China more expensive.

“This should support growth in China, which has slowed in 2015, in large part because of a cooling real estate market. The devaluation will also ease concerns about deflation in China, although it will hurt Chinese consumers by making goods, especially imported goods, more expensive,” said Gus Faucher, a senior macroeconomist at PNC Financial Services Group.

Although China said this was a one-time move, further devaluations could be in the cards. Trade is already expected to be a drag on U.S. growth in the second half of this year, and that drag will now be somewhat larger. However, the implications for U.S. growth are limited, Faucher said.

“Over the long run, stronger Chinese growth is a plus for the U.S. economy. The stronger dollar could restrain inflation, at a time when the Federal Reserve would like inflation to accelerate,” Faucher said.

U.S. long-term rates fell in response to the Chinese move, with the interest rate on the 10-year Treasury bond down to 2.14 percent. The fall in yields helped push interest-rate-sensitive sectors higher, with utilities and telecommunications gaining nearly 1 percent and 0.7 percent, respectively, in the S&P 500 index.

Meanwhile, Greece and its international lenders have struck a bailout deal after months of tense negotiations, worth up to 85 billion euros ($94 billion) in new loans over three years.

Greek officials expect the deal to be ratified by parliament Wednesday or Thursday, and evaluated by eurozone finance ministers Friday. The deal will clear the way for Greece to receive aid disbursements by Aug. 20, the day a 3.2 billion ($3.5 billion) euro debt payment is due to the European Central Bank.

Dow components Apple Inc. (NASDAQ:AAPL) and Chevron Corporation (NYSE:CVX) led the index lower Tuesday, shedding 2.5 percent and 2.2 percent, respectively. Verizon Communications Inc. (NYSE:VZ) was the largest gainer in the index, up more than 1 percent.