The benchmark S&P/ASX200 lost 139.2 points to 4010.5 within 15 minutes of the market opening, while the broader All Ordinaries fell 134.6 points to 3971.9.
In the US, the Dow Jones Industrial Average plummeted 4.85 per cent to 8696.11, the Nasdaq fell 4.34 per cent to 1608.70 and the Standard & Poor's 500 index lost 5.02 per cent to close at 904.96.
Early losers on the Australian market today included mining giants Rio Tinto and BHP, which were both hit by a fall in commodity prices.
By 10.16am AEDT, Rio Tinto was down 9.48 per cent, to $71.55 and rival BHP had fallen 7.57 per cent to $26.99.
Commonwealth Bank was 70 cents lower, or 1.76 per cent, at $39.10 after announcing failed childcare centre operator ABC Learning Centres owed it $240 million.
The news followed ANZ saying yesterday that ABC owed it $182 million, Westpac saying it had a credit exposure of about $200 million, and NAB $140 million.
This morning, ANZ was 43 cents lower, or 2.54 per cent, to $16.52 and Westpac lost 50 cents, or 2.38 per cent, to $20.50.
National Australia Bank was $1.73 lower at $22.97, after going ex-dividend today.
ABN Amro Morgans private client adviser Bill Bishop said the falls on local markets were across the board, following the second daily decline on Wall Street.
"They have gone back to realising Barack Obama cannot save them overnight because he does not get into power for some time,'' he said.
"He will do what he can, but this disaster has taken a long time to put together and it's gathering momentum.
"Those who suggested that the bottom had arrived, maybe are possibly rejigging their estimates.''
Mr Bishop said equity markets were paying for firms lowering their debt levels.
"Credit is very tight. People have to sell things without raising money,'' he said.
"If they cannot raise money from the banks, they have to sell things.''
Mr Bishop said it was likely local shares would end the day lower.
Local energy stocks were lower after another plunge in the price of oil on fears of falling demand from a global recession.
On the New York Mercantile Exchange, light sweet crude for December dropped $US4.53 a barrel to close at $US60.77, its lowest level since March 2007.
At 10.43am AEDT, Woodside Petroleum was down $2.17, or 5.09 per cent, to $40.50, Santos was 48 cents lower, or 3.36 per cent, to $13.79 and Oil Search was down 26 cents, or 5.37 per cent, to $4.58.
In company news, BlueScope Steel has appointed a chief executive of its Australian distribution and solutions division. Shares in BlueScope were 20 cents, or 4.4 per cent lower at $4.35.
Toy wholesaler Funtastic, which has a supply arrangement with ABC Learning Centres, says its earnings could be adversely affected by the childcare operator going into voluntary administration and receivership. Funtastic was up one cent, or five per cent, to 21 cents by 10.48am AEDT.
Newcrest Mining was up 22 cents to $21.62, Newmont Mining was down ten cents to $3.85, and Lihir Gold fell four cents to $1.98.
At 10.50am AEDT, Telstra was the most traded stock by volume, with 9.807 million units changing hands worth $41.936 million. Its stock was up six cents, or 1.43 per cent, at $4.27.
Market turnover was 223.55 million shares, valued at $740.62 million, with 125 stocks up, 507 down and 196 unchanged.
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