THE resource sector led the sharemarket to a two-month low yesterday as Greece's problems continued to erode investor confidence.
The S&P/ASX 200 Index closed down 100.8 points, or 2.4 per cent, at 4165.5.
The falls were broad-based with the utilities sector the only winner, albeit with a rise of only 0.2 per cent.
Greece's problems were at the forefront of investors' minds, amid the news the country will be going back to the polls because it had been unable to form government.
With its finances drying up, Greece is unable to pay its debts and an exit from the eurozone now looks more likely.
IG Markets analyst Stan Shamu said an exit by Greece from the eurozone could lead to a prolonged period of uncertainty on the European front.
"At the moment it just seems like that's what's driving sentiment," Mr Shamu said.
There had been a run of cash out of European banks, with bond yields rising particularly in Spain which meant confidence in the region was falling, he said.
The only positives were that short-sellers (investors betting on a fall in stocks) were winning, which made it possible to pick up quality stocks such as BHP Billiton and Rio Tinto at attractive values, he said.
Mining stocks fell about 4 per cent across the board, with energy stocks about 3 per cent weaker. BHP Billiton closed at a three-year low, down $1.37, or 4.1 per cent, at $32.49, Rio Tinto lost $2.32, or 3.9 per cent, at $57.99 and iron ore miner Fortescue Metals plunged 26?, or 5.1 per cent, to a four-month low of $4.84.
Australia's largest listed oil and gas play, Woodside Petroleum, shed $1.08 to $31.72 and Santos retreated 27? to $12.28.
The big banks were slightly less ugly, with Commonwealth Bank losing 89? to $51.77, ANZ dropping 50? to $51.61, Westpac shedding 22? to $21.68 and National Australia Bank closing 27? lower at $24.40.
Toll Holding shares slumped 15.23 per cent, or 85?, to $4.73 after the transport and logistics group flagged lower earnings because of weaker demand from the struggling retail sector.
Industrea shares jumped 43 per cent to $1.23 after US giant General Electric announced a $700 million friendly takeover for the mining equipment maker.
Australia's largest goldminer, Newcrest Mining, lost $1.07, or 4.3 per cent to $25.87.
At the close of Sydney trading, the spot gold price was down $US23.80 at $US1532.69 an ounce.