Shares dropped to their lowest level in seven weeks, shedding about $20 billion, amid growing worries the US Federal Reserve might start reducing its stimulus as early as this month.
The benchmark S&P/ASX 200 Index dropped 75.8 points (1.4 per cent) to 5198, its lowest level since mid-October. It was the biggest one-day selloff since August 7. The broader All Ordinaries Index lost 70.6 points (1.4 per cent) to 5196.9.
The market got off to a slow start after Wall Street chalked up its fourth straight day of losses over improving jobs data that lifted expectations the US central bank might start to wind back its $US85 billion-a-month stimulus when it meets in mid-December. A profit warning by Qantas contributed to the early gloom.
Westpac lost 2.7 per cent to $31.49, Commonwealth Bank 1.7 per cent to $75.50, NAB 2.1 per cent to $33.66 and ANZ 1.8 per cent to $31.19.
Qantas was the worst-performing stock in the top 200, slumping 11.2 per cent to a year low of $1.07 after warning it expected a half-year loss of $300 million and would slash at least 1000 jobs over the next year.
The big miners fell despite the combination of a falling dollar and firmer commodity prices as the spot price of iron ore, landed in China, strengthened 1.1 per cent to $US139.70 a tonne.
BHP Billiton was down 2¢ to $36.78 and Rio Tinto 0.4 per cent to $66. But the third largest producer Fortescue Metals Group was up 1.1 per cent to $5.69.
Information technology was the only sector to finish higher, up 0.1 per cent as share registry Computershare, which gets a significant translation benefit from a lower dollar, rose 0.2 per cent to $10.76.
Credit reporting agency Veda Group made a stellar debut on the exchange, lifting 40 per cent to $1.75, before the biggest float of the year on Friday from Nine Entertainment Co.
Wilson HTM Investment Group senior investment manager Peter McManus said market falls this week were largely attributable to "long-term interest rates rising and putting pressure on high-yielding equity markets like Australia".
But he also said that institutional investors were "likely to be selling existing profitable holdings in order to participate in new listings".
Australia's trade deficit widened to $529 million in October and the dollars was buying $US90.43.