Investors flirted with giving up the year's gains in a volatile trading session, pushing the Australian stock market lower to close just clear of the 2013 open of 4649 points, as markets across the region took a hit on growing fears of a Chinese credit crunch.
China's looming economic slowdown continued to weigh on markets, with concerns mounting that the country's growth would miss the People's Bank Of China’s forecasts for the first time since the Asian crisis in 1998.
At the 1615 AEST official market close, the benchmark S&P/ASX200 index lost 0.28% to 4,656 points, while the broader All Ordinaries index shed 0.38% to 46133.5 points.
The benchmark touched an intra-day low of 4632.3 points.
IG market analyst Evan Lucas said it was difficult to predict how far the market would fall.
"China, our largest trading partner, is current experiencing a structural change to its banking system which is causing instability," he said.
"While our biggest lead market in the US is throwing a hissy fit after being told its liquidity pacifier could be taken away, making predicting the floor very hard."
Traders sold the Chinese indices further into bear territory as markets across Asia were mired in red.
Tokyo's Nikkei fell 1.64% to 12 849.1 points at 1455 AEST and Hong Kong's Hang Seng losing 1.42% to 19533.1.
The Shanghai Composite Index tumbled 3.79% to sit deeper in bear territory at 1888.68 points.
IG market analyst Chris Weston said stress was increasing on mid-sized Chinese banks and their margins could be at risk, which was what the PBOC wanted to see to stop credit expanding.
"The actions of the PBOC will ultimately be seen as positive given the long-term goals to reduce the instability in the financial sector," Mr Weston said,
Investors fled materials, with miners and energy stocks hardest hit by the China narrative.
In Australia, the market on Monday posted its largest one-day loss in two months as nervous investors looked to steep falls on Asian markets on China's worsening cash squeeze.
The benchmark S&P/ASX200 index was down 69.7 points, or 1.47%, at 4,669.1 points, while the broader All Ordinaries index was down 72.7 points, or 1.54%, to 4651.1 points.