Spot yuan in China hit a low of 6.4510 per US dollar, its lowest since August 2011, after the central bank set its daily midpoint reference at 6.3306, below the level set by Tuesday's devaluation. The currency fared worse in international trade, touching 6.59 to the dollar.
The yuan has lost 3.5% against the US dollar in China in the last two days, and around 4.8% in global markets.
The central bank, which had described the devaluation as a one-off step to make the yuan more responsive to market forces, on Wednesday sought to reassure financial markets that it was not embarking on a steady depreciation.
The devaluation had sparked fears of a global currency war and accusations that Beijing was unfairly supporting its exporters.
"Looking at the international and domestic economic situation, currently there is no basis for a sustained depreciation trend for the yuan," the People's Bank of China (PBOC) said.
Foreign exchange traders later said state-owned banks were selling dollars on behalf of the PBOC to restrain the yuan's fall and the spot market rate rallied strongly late in the day to close 6.3870, a rate which will influence Thursday's setting.
"Apparently, the central bank does not want the yuan to run out of control," said a trader at a European bank in Shanghai.
However, sources involved in the Chinese policy-making process said powerful voices within government were pushing for the yuan to go still lower, suggesting pressure for an overall devaluation of almost 10 percent.
Tuesday's yuan devaluation followed a run of poor economic data and resulted in the biggest one-day fall since 1994, raising market suspicions that China was embarking on a longer-term depreciation of its exchange rate that would make Chinese exports cheaper.
Data on Chinese factory activity growth and retail sales on Wednesday underlined sluggish growth in the world's second-largest economy, while fiscal expenditures jumped 24.1% in July, reflecting Beijing's efforts to stimulate economic activity.
China's Ministry of Commerce acknowledged yesterday that the depreciation would have a stimulative effect on exports, as some Chinese steel producers have already cut export prices in response to the lower yuan.
Economic growth in China has slowed markedly this year and will hit a 25-year low even if it meets its official 7.0% target. Some economists believe China's economy is already growing only half as fast as official data shows, or even less.
Analysts at BMI Finance Ltd in Hong Kong downgraded their year-end forecasts for the currency to 6.83, down 10% from pre-devaluation levels.
The currency's slide puts other Asian economies at a disadvantage also and resulted in Indonesia's rupiah and Malaysia's ringgit hitting 17-year lows yesterday. The Australian and New Zealand dollars also fell to six-year lows.
Stocks fell again worldwide in the wake of the yuan devaluation as exporters to China feared a loss of competitiveness.
Investors sought safety in top-rated government bonds, driving yields on German two-year bonds to a record low and pushing US Treasury yields down, with some analysts saying a long-awaited Federal Reserve interest rate rise may now be delayed.
The International Monetary Fund said China's move to make the yuan more responsive to market forces appeared to be a welcome step and that Beijing should aim for an effectively floating exchange rate within two to three years.
Beijing has been lobbying the IMF to include the yuan in its basket of reserve currencies known as Special Drawing Rights, which it uses to lend to sovereign borrowers, which would enable more international use of the yuan.
