A three-pronged attack of uncertainty has wiped $27.2 billion from the sharemarket - its deepest one-day rout in almost six weeks.
As speculation intensified about the US Federal Reserve beginning to wind back its stimulus efforts - worth $US85 billion a month - in September, the S&P/ASX 200 Index plunged 1.9 per cent to 5011.3 points, posting its second day of losses and biggest one-day drop since July 3.
Japan's Nikkei average was also rocked, tumbling 4 per cent, its biggest intra-day hit since mid-June.
The losses came after the ASX slipped 0.1 per cent on Tuesday following the Reserve Bank signalling it could end its easing cycle as it cut the official cash interest rate for the second time in four months. That, combined with a federal election campaign, which normally steers the market sideways, compounded the plunge into negative territory, according to AMP chief economist Shane Oliver.
Dr Oliver said the uncertainty usually scared off foreign investors, who control about 30 per cent of the Australian sharemarket.
"That has been reinforced by all this tapering talk. If you go back to May and June when the tapering talk in the US first erupted it tended to be positive for the US dollar and negative for currencies like the Australian dollar, and that has weighed on our sharemarket," Dr Oliver said.
"There's this thought that if America's economy is looking stronger and they're starting to reduce the monetary stimulus, then it makes sense to start putting money back in the US and, by implication, that means less money for Australia."
But RBS Morgans private client adviser Bill Bishop said the Fed comments should not have taken the market by surprise. "They're gently breaking us in, and it had to happen, quite frankly," he said. "They're going to have to do it sooner or later, and the market's hooked on the drug [of stimulus], and they like it."
Resources led the ASX nosedive, sliding 2.6 per cent as the High Court found the profits tax on iron ore and coalmines was constitutional.
Fortescue Metals, which led the challenge, slipped 18¢, or 4.6 per cent, to $3.75. BHP Billiton and Rio Tinto were also down, falling 2 per cent to $34.90 and 2.1 per cent to $58.60 respectively.
The banks weighed on the market, with CBA shedding 2 per cent to $72.08 and Westpac finishing 2.2 per cent lower at $30.54. NAB and ANZ fell 1.7 per cent to $30.53 and 2.2 per cent to $29.10 respectively.