At 4.15pm (AEST), the benchmark S&P/ASX200 was down 102.4 points, or 2.06 per cent, to 4877.1, while the broader All Ordinaries lost 101.4 points, or 2.01 per cent to 4949.5.
The September share price index futures contract was down 139 points to 4862 on volume of 34,324 contracts.
Renewed financial uncertainty hit Australia's major banking stocks, dragging the wider market lower, Austock Securities senior client adviser Michael Heffernan said.
"While the blood's not gushing, it is oozing," he said.
"The banks are down largely because of factors in the US. Commodity prices were not too bad (overnight)."
Commonwealth Bank finished down $1.31, or 3.05 per cent, to $41.59, Westpac lost 67 cents, or 2.79 per cent, to $2.79, National Australia Bank was off $1.07, or 4.34 per cent, to $23.60, and ANZ fell 66 cents, or 3.9 per cent, to $16.26.
Westpac takeover target St George was down 77 cents to $30.45.
The Australian market is "bouncing along the bottom", Mr Heffernan said.
"We're in about a range of 300 points off the January low."
A spike in US jobless claims, weak retail sales figures and a drop in the price of crude oil led to a plunge on Wall Street of 3 per cent overnight.
The Dow Jones Industrial Average fell 344.65 points, or 2.99 per cent, to 11,188.23.
The Nasdaq composite slid 74.69 points, or 3.2 per cent, to 2,259.04 and the broad-market Standard & Poor's 500 index shed 38.15 points, or 2.99 per cent, to 1,236.83.
The large miners did not fall as far as financial stocks, with BHP Billiton easing 0.3 per cent, or 11 cents, to $37.00 and its takeover target Rio Tinto down $1.51, or 1.35 per cent, to $110.08.
Rio Tinto said it had approved $US293 million ($357.9 million) to fund the further expansion of its 58.7 per cent-owned Iron Ore Company of Canada operations.
Oil stocks were weaker after the oil price fell overnight, with Oil Search falling 3.87 per cent, or 21 cents, to $5.21, Santos was 17 cents softer at $17.46 and Woodside Petroleum off 47 cents to $55.98.
At 4.55pm the spot price of gold was $US795.20 an ounce, down $US11.70 on yesterday's Sydney close of $US806.90 an ounce.
Gold miners were mixed, with Newcrest Mining gaining 63 cents to $21.77 and Lihir Gold eased eight cents to $1.92.
Shares edge higher at noon
Hot Market: Seattle - A Lesson In Normalizing Markets
Shares slide back towards 5000
