The sharemarket has all but wiped away any gains for 2013, as investors shun stocks on fears that central banks might start pulling the plug on cheap money.
The benchmark S&P/ASX 200 Index finished down 28.7 points, or 0.6 per cent, to 4695.8. The broader All Ordinaries shed 31.2 points, or 0.7 per cent, to 4684.9. It is the ASX 200's lowest close since January 8.
At one point the ASX 200 hit an intraday low of 4658 points - only slightly above where it was at the start of the year, at 4644. The All Ords hit its lowest point of the year at 4650 points.
The market has now fallen 10.1 per cent since its highest close for the year in mid-May, entering into what is widely considered a correction.
A broader global rout, which saw Japan's Nikkei enter bear territory and Chinese shares hit six-month lows, also plagued the local index. The Nikkei closed 5.4 per cent lower on Thursday. It has now fallen 21.9 per cent since its peak on May 23.
Credit Suisse strategist Damian Boey said investors were also responding to worrying reports that the People's Bank of China was not injecting much-needed emergency liquidity into Chinese financial markets, driving Australian resources stocks down.
"This is a big problem," he said. "[China] had some payment failures in the interbank system. Some banks are facing some stress there, and if the PBOC doesn't inject that liquidity, then it's saying it is prepared to tolerate banks experiencing stress - or even going under."
Locally, mining shares were hit hard by the Chinese fears, with BHP falling 2.6 per cent to $32.12 and Rio Tinto dropping 2.4 per cent to $51.57. Iron ore miner Fortescue Metals finished 3.4 per cent lower at $3.17.
Higher-yielding financials were the only major sector to post gains. Westpac jumped 2.6 per cent to $28.18, ANZ rose 1.7 per cent to $27.01, NAB gained 1.1 per cent to $28.37 and CBA added 1 per cent to $65.77.
"The decent sized drop on the ASX today has led to some value hunters to come in a play, there's always two sides to the coin," said Suncorp financial markets analyst Darryl Conroy.
However, the mood was unlikely to change, said Mr Conroy, as speculation surrounding the tapering of quantitative easing continues to spook investors. "It seems to be running on fear more than anything else."