U.S. stocks fall on China's currency move

U.S. stocks extended losses on Wednesday, a day after the Chinese central bank's decision to improve its foreign exchange rate formation system.

At midday, the Dow Jones Industrial Average plunged 246.43 points, or 1.42 percent, to 17,156.41. The S&P 500 shed 27.51 points, or 1.32 percent, to 2,056.56. The Nasdaq Composite Index lost 76.43 points, or 1.52 percent, to 4,960.36.

Effective from 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 People's Bank of China (PBOC).

Some U.S. analysts said the PBOC's decision is expected to add further momentum to the strengthening dollar, which would be a headwind against U.S. multinationals.

In a statement, however, the IMF described the Chinese central bank's move as "a welcome step," saying a more market-oriented exchange rate would facilitate the operation of the special drawing rights (SDR) if the RMB was included in the basket.

Chris Low, chief economist for FTN Financial, also noted that China's markets are more open than ever in an effort to meet the requirements of the IMF and join the SDR.

In corporate news, Alibaba, China's e-commerce giant, plummeted over 6 percent in the early trading on Wednesday, after the company posted the slowest growth in more than three years.

Alibaba's revenue for the quarter ending June 30, 2015 was 3. 265 billion U.S. dollars, an increase of 28 percent compared with the same quarter of 2014. The increase was mainly driven by the continued rapid growth of China's e-commerce retail business. But its revenue missed market expectations.

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