“China’s government insists it has allowed the yuan to fall to align it more with real market forces, and not to prop up China’s falling exports, as some analysts suspect”.

Investors saw Beijing’s move as an effort to benefit its exporters but many economists rejected that view because global demand is weak. The last time the currency moved this much – 1994 – China’s economy ranked as the world’s eighth largest, just behind Canada’s, and few outside its borders would have even been able to put a name to the currency.

Markets were also lower in Europe and Asia.

After yesterday’s devaluation Chinese authorities said they were seeking to push market reforms in a one-time move.

“Investors worry that other countries will lower the value of their currencies to keep the price of their exports competitive with China’s”.

Those moves contrast with action foreseen from the Federal Reserve, which is widely expected to boost the short-term interest rate it controls later this year.

On Wednesday, the Chinese central bank indicated it had no immediate plans to stop the yuan’s decline.

The Fed wants to be “reasonably confident” that inflation is returning to its 2 percent target before raising rates.

“However, suggestions that China is engaging in a currency war could undermine the political goodwill towards it that will ultimately decide whether or not it is permitted to join”.

Beijing will likely move cautiously, but market expectations of further weakening “could quickly become entrenched” and cause the yuan to “depreciate quite quickly and significantly”, Wang said.

“From the worldwide and domestic economic and financial situation, now there is no base for continued depreciation of the RMB exchange rate”, the bank said in a statement.

Though a weaker yuan might prompt complaints by foreign manufacturers, China’s central bank said its goal was to give market forces a bigger role – a step Washington has demanded.

The yuan’s decline was small compared with fluctuations of freely traded currencies.

China first intervened in the currency markets on Tuesday, when it unveiled a commitment to set the yuan’s daily fixings according to the previous day’s closing spot prices and market-moves of other major currencies.

VIETNAM DEVALUES: Vietnam doubled the trading band of its currency Wednesday to 2 percent allow it to weaken following China’s devaluation.

The cuts roiled Asian shares Wednesday, with Hong Kong and Tokyo all losing more than 1 percent, while oil continued its slide after hitting a more than six-year low in New York.

Until now, Beijing set the yuan’s value each day based on a basket of currencies that is believed to be dominated by the U.S. dollar.

CURRENCIES: The dollar fell to 124.23 yen from 125.18 yen in the previous trading session.

Chinese shares fell below the 3,900 points level on Wednesday as the yuan continued its decline.