Safe-haven assets, including the Japanese yen, core government bonds and gold, rallied.
The grim mood followed declines on Wall Street on Friday with MSCI's gauge of world stocks posting its largest weekly loss of the year. The MSCI Asia Pacific Index dropped 1.6%, while the MSCI Hong Kong Index slid for a ninth day as protesters moved to shut down the city with a general strike.
The yuan has lost 5% since hitting a high in February of 6.6862 to the dollar.
Australian shares slipped about 1.5% to spend their fourth straight session in the red, and South Korea's KOSPI .KS11 tumbled 2.1% to hit its lowest since December 2016.
China's state-run agricultural firms are now biding their time, in anticipation of further trade talks between the two countries, the sources added, opting for anonymity.
The central bank attributed the yuan move to protectionism and expectations of additional tariffs on Chinese goods, while saying it can still maintain a steady currency. The currency, down 1.5% in offshore markets.is heading for its biggest one-day drop in four years.
"Over the past couple of years, China has kept the renminbi stable against the basket, but with the renminbi TWI (trade-weighted index) now testing the lower end of the range in play since 2017, investors may turn nervous, introducing another dose of volatility", Morgan Stanley strategists wrote in a note to clients.
In offshore markets, the yuan fell to its weakest since worldwide trading of the Chinese currency (pictured, on screen in Beijing) began.
"China dropped the price of their currency to an nearly a historic low".
That dragged the dollar index.DXY off 0.1%, though it was up against most other Asian currencies and those exposed to China or commodities including the Australian dollar.
Japan's yen, which investors tend to buy in times of risk aversion, rose 0.7 per cent to its highest since a January flash crash.
German 10-year government bond yields dropped on Friday to an all-time low of -0.502% and the country's entire government bond yield curve turned negative for the first time ever.
The Chinese Foreign Minister, Wang Yi, said tariffs are "not a constructive" way to solve the USA trade war, AFP reported.
United States 10-year yields dived 7 basis points to 1.77 per cent, while Germany's 10-year bund yields fell to -0.53 per cent.
USA 10-year yields US10YT=RR fell to 1.7599%. The euro EUR= surged, gaining 0.6% to the dollar at $1.1172.
Sterling hovered near 2017 lows at $1.2117, pressured by concerns about Britain exiting the European Union without a trade deal in place.
Oil extended losses with U.S crude CLc1 down 1% at $55.1 and Brent LCoc1 down 1.2% at $61.17.