By the time the dust had settled, nearly $26 billion had been wiped from the value of local shares yesterday after a savage reaction from shareholders to the weekend's huge sell-off in European and US markets.
Local mining and bank stocks weighed heavily, accounting for 66 per cent of the losses, as traders dumped anything linked to global growth, pushing the bourse well below the 4000-point barrier, its lowest level in almost seven months.
The flight to safety came as economists ramped up pressure on the Reserve Bank to cut rates by at least 25 basis points at its policy setting meeting today, after inflation figures showed no price growth for the past three months, and jobs advertisements tracing backwards.
The telecommunications sector provided a rare piece of good news, boosted by the broad flight to safety, with Telstra shares rising 3?, or 0.5 per cent, to $3.66.
But fears about a slowdown in Chinese economic activity, combined with poor British manufacturing data and surprisingly weak growth in US employment, saw some of the most popular shares sold. BHP Billiton dropped 97?, or 3.1 per cent, to $30.75, while Rio Tinto shed $2.55, or 4.7 per cent, to $52.90.
By close of trade, the S&P/ASX 200 index had fallen 78.9 points, or 1.9 per cent, at 3985, while the All Ordinaries index remained above 4000 points, losing 83.5 points, or 2 per cent, to 4033.4.
Investors took their cues from the sell-off on Wall Street on Friday that was prompted by a weaker than expected US jobs report.
The Dow Jones Industrial Average and the S&P 500 suffered their worst day of the year, losing more than 2 per cent each, after the US non-farm payrolls showed the world's biggest economy added just 69,000 jobs in May, its weakest growth in 20 months.
The news pushed Australian government bond futures prices to all-time highs, sending the June 10-year bond futures contract to 97.360 (2.64 per cent), and the June three-year bond futures contract as high as 98.100 (1.9 per cent).
It prompted bond traders to say that unless there was a circuit-breaker, in either market sentiment or from policy makers, the bond market would keep responding to fresh news - which keeps getting worse.
Brokers said the volume of shares traded on the stock exchange was quite light, but any trading that was being done was generally all one way.
"It's fairly miserable, all things considered," said Richard Morrow, a director at EL&C Baillieu. "It probably shouldn't go much lower than this but there's not a lot of good news out there."
Fund managers said the panic had done little to make them change their portfolios.
"We've always positioned our portfolios quite defensively and haven't banked on the fact that growth is around the corner," a portfolio manager at Investors Mutual, Jason Teh, said.
"The sharemarket's pretty much accepted that view now, which is to our benefit."
Energy stocks were the worst performers on a day where only two sectors - gold and telecoms - finished in positive territory. Metals and minerals stocks slipped 2.78 per cent, the materials sector fell 2.75 per cent and financial stocks fell 1.69 per cent.
The spot price of gold in Sydney was $US1624.60 an ounce, up $US66.71 from Friday's close.