About $30 billion was wiped off the value of the market in the first few minutes of trading in what was described as a "blood bath".

The benchmark S&P/ASX200 index closed 2.06pc, or 102.4 points, lower at 4877.1 after earlier slumping as much as 2.85pc, or 141.9 points, to 4837.6, its biggest one-day drop since July 25.

The index finished 5pc below last Friday's close and 23.2pc for the year-to-date.

The Australian dollar closed at 81.79 US cents, down 7.07pc for the year against the US dollar, at a year's low, according to data from Bloomberg, while the Aussie lost 1.9pc, or 1.7 yen, against the Japanese currency. It bought only 87.4 yen, the lowest since July 2006.

BHP Billiton recovered from early losses to end the day 11 cents, ot 0.3pc, lower at $37.00, while Rio Tinto lost $1.51, or 1.35pc, to close at $110.08.

In the banking sector, ANZ lost 66 cents, or 3.9pc, to $16.26, the Commonwealth Bank lost $1.31, or 3pc, to $41.59, NAB lost $1.07, or 4.3pc, to $23.60 and Westpac lost 67 cents, or 2.8pc, to $23.35.

Among energy stocks, Santos was down 17 cents, or 1pc, to $17.46 and Woodside Petroleum lost 47 cents, or 0.8pc, to $55.98.

Retailer Woolworths was down 39 cents, or 1.4pc, to $27.30 and Wesfarmers lost 90 cents, or 2.8pc, to 30.90.

Gold miner Lihir lost 8 cents, or 4pc, to close at $1.92 and Newcrest was down 63 cents, or 3pc, at $21.77.

"The market has recovered quite well," said Rick Klusman, head of institutional trading at Aequs Securities.

"The reason the market hasn't gone up further is because people are still worried about US (stocks) futures trading down 31 points."

Today's slide was sparked by falls of about 3pc by the main Wall Street share indexes as investors cut back profit expectations for companies as the US struggles to grow.

Banks, in particular, sagged on doubts that the global credit squeeze is over.

"Shares have given up their recent gains, especially in the financials," Macquarie Equities adviser Helen Spencer.

"There are lower volumes as people remain on the sidelines to see whether the US unravels."