Shanghai stocks tumbled nearly 4 per cent on Tuesday to a two-year low as US President Donald Trump's fresh tariff threats against China raised the spectre of a full-blown trade war.

The Shanghai Composite Index plunged more than 5 per cent at one point in late trade before finishing the session down 3.8 per cent at 2,907.82 points. The blue chip CSI300 index fell 3.6 per cent to 3,621.12.

“It's the darkest hour...the most agonizing moment in the first half,” Zhang Yidong, strategist at Industrial Securities wrote on Tuesday.

“There are disaster victims everywhere,” he said, citing the triple-whammy of the Sino-US trade spat, Beijing's regulatory crackdown on riskier lending practices and global liquidity tightening.

The tech-heavy start-up board ChiNext tumbled nearly 6 per cent to its lowest level since January, 2015. Stirring memories of the equity market crash in the summer of 2015, over 1,000 stocks slumped by their 10 per cent daily limit as Chinese investors dumped stocks across the board.

On Tuesday, China's commerce ministry had said the country would take “qualitative” and “quantitative” measures, and “fight back firmly” against additional tariff measures by the US government.

The statement came after Trump threatened to impose a 10 per cent tariff on $200 billion of Chinese goods, raising the stakes in the tit-for-tat trade conflict with Beijing. He said the move was in retaliation for China's decision to raise tariffs on $50 billion in US goods.

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