The move, which could limit crude demand, caused oil prices to fall, handing yet another reason for oil-reliant Middle East markets to worry.
"China’s retaliation by way of halting some US imports & letting the currency weaken against the dollar is impacting markets worldwide. MENA equities tend to correlate more with Global markets during extreme movements," said Vrajesh Bhandari, senior portfolio manager at Al Mal Capital. "For the Middle East, tumbling crude oil prices is yet another negative."
"Not surprising that traders are taking money off table before going into an extended break for the Eid holidays," Bhandari added.
The Saudi Arabian index which was also hit by disappointment over some corporate earnings, fell 1.1% with all its banking shares falling.
Banque Saudi Fransi shed 3.6% after posting a 4.4% decline in second-quarter profit, citing higher provision for zakat, an Islamic tax in Saudi Arabia.
The insurer Walaa Cooperative Insurance slid 6.1% after swinging to a pre-zakat loss in the second quarter. Travel company, Seera Group Holding, which posted a 35.9% slump in profit for the same period, fell 2.7%.
Qatar's index plunged 4.2% to its biggest single-day loss since June 5, 2017, wiping out gains for the year in its fifth straight session of losses.
Blue-chip stocks hurt the index the most with Qatar National Bank slumping 6%, while petrochemical maker Industries Qatar raced 5.8% lower.
Gulf International Services sank 9.7% after the drilling rig provider posted a nearly 15% decline in first-half profit
In Dubai, the index fell 2% with property and financial stocks weighing heavily on the index. Dubai Islamic Bank slipped 2.1% and Emaar Properties, dropped 3.3%.
Emaar Properties reported a 7.4% decrease in second-quarter profit to 1.37 billion dirhams ($373 million), missing an EFG Hermes forecast of AED 1.55 billion dirhams.
Dubai prime residential property prices fell 1.9% in the first half of the year due to the market being oversupplied, Reuters reported on Monday citing real estate company Savills.
The Middle East financial hub's real estate market has steadily contracted since mid-2014 as foreign investor interest cooled.
In Abu Dhabi, the index was down 1.9%. Market heavyweight lender First Abu Dhabi Bank dropped 2.2%, while Emirates Telecommunications Group lost 2.6%. Egypt's blue-chip index edged 0.1% lower with Qalaa Holdings losing 4.3%.
(Reporting by Shakeel Ahmad Maqsood Alam in Bengaluru) ((firstname.lastname@example.org))