The dollar gained and Wall Street slumped on China's unexpected 25-basis-point rate increase a day after US Treasury Secretary Timothy Geithner vowed Washington would not devalue the currency for its own advantage.

Oil prices fell, copper slid and gold was poised for its largest one-day drop since early July, while the dollar rose against the euro, the Japanese yen and a basket of major currencies following the rate hike by the People's Bank of China.

The central bank of China said it would raise its benchmark one-year lending and deposit rate, effective on Wednesday, in a tightening that analysts said may suggest Beijing and Washington are working together to ease rising currency tensions. The announcement from China's central bank was made on Oct. 19, which is remembered on Wall Street as the anniversary of the 1987 stock market crash.

Traders cut their exposure to risk by taking refuge in the dollar and selling the euro and commodity-sensitive Australian dollar.

The Australian dollar, which last week rose above parity with the US currency for the first time since 1983, was hit hardest, slipping 1.5 percent. The euro and sterling also fell sharply.

Investors feared a quarter-percentage point rise in China's one-year lending rate could dampen Chinese and global growth while slowing China's voracious demand for commodities, many of which come from Australia.

"China's rate increase instantaneously pushed people to take risk off the table," said Boris Schlossberg, director of research at GFT Forex.

China "is trying to clamp down on growth and that's going to reflect badly on Australia, on Germany, on much of the world economy as it readjusts to the idea that Chinese growth may not be as torrid as expected," Schlossberg said.

The dollar was up against a basket of major currencies, with the US Dollar Index up 1.26 percent at 77.903.

European shares and Wall Street fell as disappointed investors worried about the strength of US corporate earnings after results and outlooks from consumer and technology titans Apple and IBM failed to meet expectations.

The MSCI all-country world equity index fell 1.1 percent. The pan-European FTSEurofirst 300 index of top shares slipped 0.5 percent to end at 1,082.96.

At 1750 GMT, the Dow Jones Industrial Average was down 107.40 points, or 0.96 percent, at 11,036.29. The Standard & Poor's 500 Index was down 10.32 points, or 0.87 percent, at 1,174.39. The Nasdaq Composite Index was down 24.39 points, or 0.98 percent, at 2,456.27.

The basic materials sector, closely linked to consumption in China, was the worst performer in the S&P 500 and helped push European shares edged lower.

Oil fell on the dollar's strength. US light sweet crude oil was off $2.30 to $80.78 a barrel.

Spot gold prices lost $24.55 to $1,343.70 an ounce.