The loonie rose by three-quarters of a cent against the U.S. dollar on Wednesday, but markets continued their rout amid uncertainty about the Chinese economy.

The loonie closed at 77.05 US cents on Wednesday, after falling to 76.25 on Tuesday, a casualty of China's decision to devalue its currency.

China's decision to allow the yuan to fall by a further 1.6 per cent overnight caused global market turmoil.

The Stoxx Europe 600 index, a benchmark for all European stock markets, had its worst one-day loss since last October on Wednesday because of concerns about the health of the world's second-largest economy. It slumped by 2.7 per cent.

But the Canadian dollar recovered because of a weakening U.S. dollar.

According to Knightsbridge FX currency trader Rahim Madhavji, China's move signals a downturn in overall global growth and casts doubt on whether the U.S. Federal Reserve will lift interest rates in September.

"China has caused uncertainty concerning the global economic growth and inflation, which has pressured the timeline for a U.S. rate hike," he said.

"It is less likely that the Fed would hike rates in September amidst a tepid global growth outlook."

The devaluation makes Canadian goods, especially metals and lumber, more expensive in China and hurts the overall prospect for Canadian export growth to the region.

At the same time, it has depressed prices for copper and oil, which affects Canadian markets.

"The bigger issue is what that turmoil could mean for commodity prices over the longer run and the big overall worry is that it could mean lower commodity prices for longer, oil included, which is really a negative thing and has been weighing on the Canadian dollar the last year," Greg Moore, a currency strategist for RBC Capital Markets, told CBC News.

North American markets began the day down by triple digits, with New York's Dow index down 2.4 per cent over two days. But later in the afternoon they reduced their losses.

The TSX ended the day down 75 points to 14,339, following a sharp drop on Tuesday.

The TSX got a little boost yesterday from rising gold prices as investors sought out gold as a safe haven. However, low oil prices continue to weigh on the market.

The Dow was almost unchanged at 17,402 after a 212-point drop on Tuesday. The broader S&P index rose two points to 2086.

The price of West Texas Intermediate was at $43.22 US a barrel, up slightly from the six-year low it hit on Tuesday.

A report from the International Energy Agency released Wednesday found that oil demand is rising at the fastest pace in five years.

Global oil demand is projected to grow by 1.6 million barrels a day this year, an upward revision of 200,000 barrels a day from the IEA's previous forecast, and estimated to keep rising by 1.4 million barrels a day next year. That's a result of consumers using more energy as prices drop.

But the IEA said the oil surplus will be with us for at least another year, as it will take at least that long for non-OPEC oil producers to cut back production.