A two-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 massive stimulus program as early as September, the S&P/ASX 200 Index shed 1.9 per cent to 5011.3 points, posting its biggest one-day drop since July 3.
Global markets also took a beating after comments from a pair of US Federal Reserve officials left investors uncertain about the timing of a possible reduction in its bond-buying program.
Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said the Fed could begin trimming the $US85 billion ($94.8 billion) monthly stimulus program as soon as September. Although he added it may wait longer if the expected economic growth in the year's second half fails to materialise.
Chicago Fed President Charles Evans said the central bank would probably decrease the program later this year and could do so as early as next month, depending on the economic data.
The Dow Jones industrial average fell 93.39 points or 0.6 per cent, to end at 15,518.74. The S&P 500 declined 9.77 points or 0.57 per cent, to 1697.37.
Sharp losses in Japan's Nikkei accelerated the local sell-off late in the session. Tokyo stocks plunged 4 per cent as selling pressure soared because of a stronger yen. The benchmark Nikkei 225 index on Wednesday lost 576.12 points to 13,824.94, marking the biggest drop since mid-June.
Late Wednesday the Australian dollar was trading at US89.62¢, down from US89.81¢ on Tuesday.
The Reserve Bank signalled on Tuesday it could end its easing cycle after it cut the official cash interest rate for the second time in four months. That combined with an election campaign, which normally steers the market sideways, compounded the plunge in negative territory, according to AMP chief economist Shane Oliver.
Dr Oliver said the uncertainty usually scared off foreign investors, which control about 30 per cent of the Australian market.
"That has been reinforced by all this tapering talk," Dr Oliver said. "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.
"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 Morgan 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 happen to do it sooner or later, and the market's hooked on the drug [of stimulus], and they like it."
The resource sector led the nosedive on the ASX, sliding 2.6 per cent, after the High Court found a super-profits tax on iron ore and coal mines was constitutional.
Fortescue Metals, which led the challenge, fell 4.6 per cent to $3.75. BHP Billiton and Rio Tinto were also down, slipping 2 per cent to $34.90 and 2.1 per cent to $58.60 respectively.
The big banks also weighed on the market with Commonwealth shedding $1.45, or 2 per cent, to $72.08, and Westpac finishing 70¢, or 2.2 per cent, lower at $72.08. NAB and ANZ fell 1.7 per cent to $30.53 and 2.2 per cent to $29.10 respectively.
Surfwear company Billabong was the best-performing stock, rising 10.1 per cent to 49¢.