Asia stocks buffeted by China worries, North Korea nuclear test

Spreadbetters saw the somber mood spilling over into Europe, predicting a significantly lower open for Britain's FTSE .FTSE, Germany's DAX .GDAXI and France's CAC .FCHI.

The MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS dropped 1 percent after the People's Bank of China set the yuan's midpoint rate CNY=SAEC at its weakest level in 4-1/2 years.

This accelerated the fall in the offshore yuan CNH=D3 which hit its lowest since October 2010, dragging down other emerging currencies like the Malaysian ringgit and Thai baht.

China has guided the yuan lower since a surprise devaluation of the currency last summer, rattling traders who fear it could eventually set off a round of competitive devaluations which will put further pressure on other emerging economies.

Some see the tactic as a desperate attempt by China to shore up growth, prompting concerns that the world's second-biggest economy could be even weaker than imagined, though others say further yuan weakness was inevitable in the face of the strong U.S. dollar.

A weaker yuan in theory improves the competitiveness of Chinese exports but the import cost increase it inflicts on the country's manufacturers would be an unwelcome side effect.

The latest worrying news on China came in a private survey which showed services sector activity expanded at its slowest rate in 17 months in December.

Elsewhere in North Asia, South Korea's KOSPI .KS11 and the won KRW= both fell on suspicions North Korea had conducted a nuclear test on Wednesday morning, which Pyongyang later confirmed.