The Australian sharemarket plunged 2.5 per cent after the US escalated hostilities in its tit-for-tat trade war with China by labelling it a currency manipulator, pushing yields on Australian 10-year government bonds below 1 per cent for the first time.

The Trump administration's aggressive response to Beijing's decision to allow the yuan to weaken to past 7 against the US dollar elevated fears about the outlook for Australian and global growth at a time when activity is already decelerating. The slump in stocks, the biggest since October, wiped $50 billion from the sharemarket. The S&P/ASX200 Index is down 5 per cent from its record high on July 30.