Asian stocks dived to three-year lows on Monday as a rout in Chinese equities gathered pace, hastening an exodus from riskier assets as fears of a China-led global economic slowdown roiled world markets.

Safe-haven government bonds and the yen rallied on the widespread unrest in the financial markets, set in motion nearly two weeks ago when China sharply devalued the yuan and stoked concerns about the state of its economy.

Copper, seen as a barometer of global demand, tumbled to 6-1/2-year lows as the anxiety over China sapped investor confidence.

Bourses from Japan to Malaysia were hit hard as Chinese stocks plummeted immediately after the open on Monday, with investors failing to take heart from the formalisation of rules over the weekend allowing pension funds to invest in the stock market.

Shanghai shares dived 7.7 per cent to a five-month low, having lost more than 10 per cent so far this month.

"The market is in a downtrend. There's no good news, stocks are still expensive, and there's no fresh money coming in," said Qi Yifeng, analyst at consultancy CEBM.

"With no RRR (reserve requirement) cut over the weekend, the market will directly head south."

MSCI's broadest index of Asia-Pacific shares outside Japan duly sank over 4 per cent to a three-year low. Tokyo's Nikkei was down 3 per cent and Australian shares retreated to a 1-1/2 year trough.

"China could be forced to devalue the yuan even more should its economy falter, and the equity markets are dealing with the prospect of a weaker yuan amplifying the negative impact from a sluggish Chinese economy," said Eiji Kinouchi, chief technical analyst at Daiwa Securities in Tokyo.

Sending global equity markets into a tailspin, a Caixin/Markit PMI survey on Friday showed Chinese manufacturing activity shrank at the fastest pace since 2009.

Even before the Chinese markets opened, stocks in Asia took a beating after fears of a China-led global economic slowdown drove Wall Street, previously seen as a safe-haven, to its steepest one-day drop in nearly four years on Friday. A 1.1 per cent fall in S&P 500 mini futures suggested sentiment remained weak.

While China took the spotlight, analysts pointed to other bearish fundamental factors at play.

"On the surface it would be easy to point the finger at slowing China growth, falling oil prices and emerging market currency wars as the reason why global equity markets have fallen sharply through the summer," wrote Sean Darby, chief global equity strategist at Jeffries.

"However, a mix of disinflation and deflation forces, a tightening in global monetary conditions and deteriorating profits in emerging markets are much greater factors."

Emerging market economies, many reliant on exporting raw materials, have been hit particularly hard by the spectre of slower Chinese growth and sliding commodities.

South Africa's rand struggled at 14-year lows. The Turkish lira, its plight exacerbated by domestic political developments, languished near a record low.

The Malaysian ringgit hit a 17-year low.

For some, the speed of their currency's fall appeared to have prompted an intervention. South Korean authorities were suspected of selling dollars to arrest the won's fall.

Although its decline was not as grave, the dollar also suffered against key peers like the euro and yen as global growth worries undermined wagers that the Fed will raise rates in September.

The dollar was down 0.6 per cent at 121.19 yen after hitting a six-week low. The euro gained 0.5 per cent to $1.1441 after touching a two-month high of $1.1458.

The US currency came under additional pressure as Treasury yields extended their decline on safety buying amid the slide in equities. The benchmark 10-year Treasury note yield touched a four-month low of 2 per cent.

Brent and US crude oil futures hit fresh 6-1/2-year lows as concerns about a global supply glut added to worries over potentially weaker demand from China.

US crude was down 2.1 per cent at $39.61 a barrel while Brent lost 1.6 per cent to $44.73 a barrel.

Struck down by similar concerns, three-month copper on the London Metal Exchange also reached a 6-1/2 year low, of $4,950 a tonne. – Reuters