FOREX-China's yuan breaks below 7 to the dollar, an 11-year low

* Trump’s tariff threats last week shake FX markets

* Yuan set for biggest one-day loss since 2015

* Yen jumps to seven-month high in scramble for safety

* Graphic: World FX rates in 2019 (Adds details, latest quotes)

LONDON, Aug 5 (Reuters) - China let its yuan weaken below 7 to the dollar on Monday, an 11-year low, as the escalation in the U.S.-China trade war shook currency markets.

Fearful of the impact on global growth, investors dumped export-oriented Asian currencies and rushed into safe havens, with the Japanese yen surging to a seven-month high.

Chinese authorities, who had been expected to defend the psychologically important level of 7 per dollar, allowed the currency break through the floor to its lowest in the onshore market since the 2008 global financial crisis.

In offshore markets, the yuan fell to its weakest since international trading of the Chinese currency began. The currency was headed for its biggest one-day drop in four years. It was last down 1.5% at 7.0835 in offshore markets.

The fall came after Beijing vowed on Friday to fight back against U.S. President Donald Trump’s decision to impose 10% tariffs on $300 billion of Chinese imports, ending a month-long trade truce.

“The fallout has been most evident in the Asia region,” MUFG analyst Derek Halpenny said. “We certainly expect to see general FX volatility increase in the coming days with daily PBOC (People’s Bank of China) CNY fixes an important focus each day.”

The currencies of other Asian economies closely linked with China’s growth prospects also dropped while stock markets sold off sharply. The Korean won fell 1.4% against the dollar, on course for its biggest one-day loss since August 2016. The new Taiwan dollar fell more than 0.7%.

Emerging market currencies were down across the board.

The Australian dollar, often used as a proxy bet on China, shed as much as 0.6% to $0.6748, a seven-month low.

The U.S. dollar fell, weakening as the European trading day wore on. It dropped 0.3% against a basket of currencies to 97.788.

Against the euro the dollar slipped 0.4% to $1.1155 .

Japan’s yen, which investors buy in times of risk aversion, rose 0.7% to its highest since a January flash crash. The yen was last up 0.5% at 106.04, after hitting 105.78 earlier.

Japan’s top currency diplomat, Yoshiki Takeuchi, warned that Tokyo was ready to intervene if yen gains threatened its export-reliant economy.

The Swiss franc, another safe-haven currency, strengthened 0.4% to 1.0864 francs per euro, a new 25-month high.

Sweden’s crown, which is closely linked with prospects for global growth, fell 0.5% to 10.751 crowns per euro.

Analysts said Trump, who has repeatedly called for a weaker dollar in 2019, was unlikely to ignore the yuan’s depreciation.

“There is also a risk later that President Trump responds to 7+ levels in $/CNY by claiming that China is playing a ‘big currency manipulation game’. This may extend to a threat to weaken the dollar, which will only encourage short positions in USD/JPY and a pick-up in traded volatility prices,” ING analysts said.

Sterling fell again after media speculation over the weekend that Prime Minister Boris Johnson was preparing for a general election.

The pound shed as much as 0.5% to $1.2105, not far from its two-year low of $1.2080 touched last week. It was last down 0.2% at $1.2144.

It fell 0.7% against the euro to 92 pence, a new 23-month low.

Editing by Larry King; Editing by Kirsten Donovan