Australian shares shed more than $60 billion in value during a morning sell off, and were still down around 2 per cent for the day in afternoon trade.
The local share rout followed a sharp pullback across US and European markets overnight.
Investors have turned more cautious on fear of overvalued stocks and the lingering economic impact of the COVID-19 pandemic, as second and third waves of infection ripple around the world.
By 1:15pm AEDT, the benchmark ASX 200 had dropped 2 per cent to 6,649 points, while the broader All Ordinaries index was down by a similar level to 6,918.
The All Ords had been down as much as 2.7 per cent below yesterday’s close at its low point in morning trade.
Seven out of every eight stocks in the top 200 index were in the red after lunch.
Healthcare, mining and tech stocks were suffering the biggest declines.
Fund manager IOOF was off more than 10 per cent, with laboratory services firm ALS down 7.1 per cent, business software provider Xero falling 5.9 per cent, online electronics retailer Kogan down 5.7 per cent and rare earths miner Lynas off 5.6 per cent.
However, the major banks and miners were the biggest drag on the indices, with ANZ (-2pc), Commonwealth Bank (-2pc), NAB (-1.8pc), Westpac (-1.5pc), Rio Tinto (-2.8pc), BHP (-1.6pc) and Fortescue Metals (-3.5pc) all sharply lower.
Gold miners also fell sharply, including Silver Lake Resources (-4.3pc) and Perseus Mining (-4.6pc).
While very few stocks posted gains, there were spectacular rises for some that did, such as Unibail Rodamco Westfield (+13.2pc), funeral operator Invocare (+6.5pc) and Treasury Wine Estates (+5.2pc).
Aussie dollar falls along with US markets
The Australian dollar had fallen (-1.2pc) to 76.5 US cents.
It was mainly due to the “risk off” tone in share markets, and a rising “safe-haven bid” for the US greenback.
“The Australian dollar is a risk-sensitive currency so an extension of the current equity decline is an imminent risk for the pair [AUD/USD],” NAB senior foreign exchange strategist Rodrigo Catril wrote in a note.
Wall Street was weighed down in part by a slump in Boeing and hedge funds selling off long positions to cover a “short squeeze”.
Shares of videogame retailer GameStop (+138pc) and cinema chain AMC Entertainment (+302pc) each more than doubled on Wednesday, continuing a torrid run higher over the past week, as amateur investors again piled into the stocks, forcing short-sellers like Melvin and Citron to abandon their losing bets.
“Fears are circulating that some investment funds might be quickly closing out positions as a way of shoring up their cash positions,” said David Madden, market analyst at CMC Markets UK.
“It is early days yet but we might see selling pressure ramp up for fear there could be a stampede for the exit.”
The CBOE Market Volatility index, often used as a gauge for investor anxiety, jumped above 30 points, its highest level since November.
Biggest fall in three months
The Dow Jones index lost 634 points (-2.1pc) to close at 30,303, its worst trading day since October 28.
Its losses intensified in the final hour of trade, and was down more than 700 points at one stage.
The S&P 500 dropped (-2.6pc) to 3,751, its biggest drop in three months. The tech-heavy Nasdaq Composite fell (-2.6pc) to 13,270.
Wall Street’s main indices have surged to record highs since the US presidential election in November. So the overnight losses are a tiny fraction of what it has gained.
The Dow and S&P have wiped out their gains from the past three weeks. The Nasdaq has slipped back to where it was one week ago.
Meanwhile, Boeing shares plunged (-4pc) and was among the top drags on the Dow.
This was after the plane maker posted a record annual loss, and took a hefty $US6.5 billion charge on its all-new 777X jetliner due to the COVID-19 pandemic and the aftermath of a two-year safety crisis over its 737 MAX.
Fed keeps rates near zero
Meanwhile, the US Federal Reserve kept overnight interest rates between 0 and 0.25 per cent.
As expected, the central bank made no change to its monthly bond purchases — at least $US80 billion of Treasury bonds and $US40 billion of mortgage-backed securities each month.
Fed chair Jerome Powell said the fate of the economy was tied to the success of the US vaccination program.
“There’s nothing more important to the economy now than people getting vaccinated,” he said, at a press conference after the Fed held its monthly policy meeting.
Mr Powell added that the weakest parts of the economy are sectors where people need to physically work near one another.
He told reporters he had received the first dose of a COVID-19 vaccine and expected to receive the second dose soon.
“Given the continued concerns around COVID and disappointingly slow rollout of the vaccine, the US economy is likely to lose momentum in the first quarter of the year,” said Seema Shah, chief strategist at Principal Global Investors in London.
“Yet with fiscal stimulus having taken over from monetary policy as the only game in town, it was always doubtful the Fed would announce any new actions this month.”
In Europe, Britain’s FTSE sank (-1.3pc) to 6,567, and Germany’s DAX declined (-1.8pc) to 13,620 points.
Spot Gold fell to (-0.5pc) to $US1,840.21, its lowest value in more than a week.
Brent crude oil slipped (-0.6pc) to $US55.60 a barrel.