Burberry was one of the big fallers with shares down more than 4 per cent after the intervention in what is a key market for the luxury fashion group, while the wider FTSE 100 index slid 71.68 points to 6,664.54.
Focus turned to China as it opted to devalue the yuan following figures this week showing a slump in trade. The strengthening of the currency had hit exports. The devaluation will make goods bought from abroad in foreign currencies more expensive, forcing exporters in the UK, Europe or the US either to hike prices for Chinese customers or take a hit to their own profit margins.
Chris Beauchamp, senior market analyst at IG, said it would be hard to gauge the long-term impact of China’s decision to intervene in the value of its currency, but added that “hasn’t stopped stock markets from moving southward with alacrity”.
“One thing is clear, however, and that is the weak state of China’s economy, or at the very least concerns that things will get worse unless action is taken,” he added.
With Burberry’s business in China accounting for a large chunk of its revenues, shares fell 71p to 1,536p.
Among other shares, insurance giant Prudential was the top Footsie riser after half-year results showed a better-than-expected 17 per cent rise in first-half operating profits to £1.88 billion, boosted by growth in Asia and the US. Shares rose 70.5p to 1,577p.
Meanwhile, volatile mining stocks had a mixed session as China’s devaluation sent investors into safe havens such as gold and silver. Fresnillo rose 3.5p to 65p while Randgold Resources added 21p to 3,952p.