U.S. stocks plunge as yuan falls

U.S. stocks traded drastically lower on Tuesday, as China's currency yuan fell sharply in value following a central bank decision to improve the yuan's central parity system that aims to better reflect its market exchange rate against the dollar.

At midday, the Dow Jones Industrial Average dived 240.86 points, or 1.37 percent, to 17,374.31. The S&P 500 lost 23.28 points, or 1. 11 percent, to 2,080.90. The Nasdaq Composite Index declined 62.61 points, or 1.23 percent, to 5,039.19.

The People's Bank of China (PBOC) cited a strong U.S. dollar and sharp appreciation in the RMB real effective exchange rate as key considerations behind the policy change.

U.S. analysts said the decision is expected to add further momentum to the strong dollar, which would be a headwind against U. S. multinationals.

Effective Tuesday, the Chinese currency's daily central parity quotes should be based on the closing rate of the inter-bank foreign exchange rate market on the previous day, supply and demand in the market, and price movement of major currencies, according to the PBOC.

Following the change, the central parity rate of the RMB, or the yuan, weakened sharply by 1,136 basis points to 6.2298 against the U.S. dollar on Tuesday.

On the economic front, U.S. nonfarm business sector labor productivity increased at a 1.3 percent annual rate during the second quarter of 2015, the U.S. Labor Department reported Tuesday, as output increased 2.8 percent and hours worked increased 1.5 percent.

U.S. stocks surged Monday, with the Dow Jones Industrial Average snapping a seven-session losing streak, as a Berkshire deal boosted Wall Street sentiment.

Warren Buffett's Berkshire Hathaway on Monday agreed to buy Precision Castparts for about 37.2 billion U.S. dollars, which would be the conglomerate's largest takeover ever. Enditem