Wilting investor confidence sent Australian shares to a three-year low, with the miners and banks leading the falls.
But in good news for rural exports, the Aussie dollar fell to two-year lows.
The benchmark S&P/ASX 200 index was down for the seventh of the past eight days, losing 155 points, or 3.3pc, to 4540.4. It is the lowest close since November 9, 2005.
The local market was weighed down by worries that a $US700 billion ($900 billion) rescue package passed by the US Congress late last week would do little to reverse a slow down in global economic growth.
European markets are also under seige, with an $89 billion bail-out planned for Germany's second-best mortgage bank, Hypo Real Estate Holding, the latest in a series of state-led salvage operations.
BHP Billiton shaved the most from the index, falling 63 cents, or 2.1pc, to $29.79 - the lowest close in 17 months. Rio Tinto slumped $4.43, or 5pc, to $84.48.
Fortescue Metals lost 56 cents, or 11pc, to $4.41. The shares have lost almost two-thirds of their value in the past three-and-a-half months.
Shopping centre operator Westfield slumped on news of rising vacancies in US shoppping centres, losing $1.06, or 5.9pc, to $17.00.
ANZ bank fell 63 cents, or 3.5pc, to $18.05, the Commonwealth Bank lost $1.01, or 2.2pc, to $44.00, National Australia Bank lost 60 cents, or 2.3pc, to $25.55 and Westpac lost 71 cents, or 3.1pc, to $22.50.
Macquarie Group lost $4.10 or 10pc, to $35.00. Suncorp-Metway was the best performer on the index, rising 40 cents, or 3.8pc, to $11.08 on talk of a break-up and sale of its assets.
The Australian dollar also plunged, falling as low as US 74.44 cents, its lowest in two years, down from a high of US 78.17c on Friday, as investors bet Australian interest rates will fall tomorrow when the Reserve Bank board meets.
The currency sagged even more against the Japanese yen, losing about 7pc today, to trade recently at 77.28 yen after earlier hitting a low of 76.59 yen - its lowest in almost four years.
Ord Minnett private client adviser James Drohan said currency investors had already priced in the expected 50 basis point cut tomorrow from the RBA, with fears about profits at Australian companies' profits now taking over to drive the Aussie dollar down.
The market is rating the chances of a full half-percentage point cut tomorrow to 6.5pc in official rates, according to Credit Suisse. The same gauge sees interest rates falling to 5.5pc within a year.
"Recent analysis from the IMF suggests major periods of financial stress can take up to four years to recover from, and can cut around 5pc from an economy's growth," wrote ANZ economist Katy Dean in a note to clients Friday afternoon.
"In these circumstances, the current tight monetary policy settings in Australia are not appropriate... We believe an aggressive move from the RBA is warranted."
"We expect the bank to cut interest rates by 50bp at next week's board meeting."
Market turmoil is set to continue as overseas share markets slide. Japan's benchmark Nikkei 225 lost almost 5pc by late afternoon trading in Tokyo, while Hong Kong and mainland China's sharemarkets lost between 3pc and 4pc.
The Dow Jones Industrial Average is also pointed lower when Wall Street reopens. The index's futures gauge was off 161 points at 10,203.
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