At 4.15pm (AEDT) the benchmark S&P/ASX200 index was down 35.2 points or 0.98 per cent at 3556.2, while the broader All Ordinaries index was down 36.8 points or 1.04 per cent at 3498.9 points.
"Telstra is being bashed again,'' said Ord Minnett private client adviser Jon Hancock.
Telstra's shares finished 3.56 per cent lower at $3.52.
The heavy selling came after the Federal Government dumped the telco from the broadband network tender process.
Mr Hancock said Telstra may be dragging the market down, although heavyweights such as News Corporation (the parent company of the publisher of news.com.au) and the resources sector were also making an impact.
News Corp shares were down 4.8 per cent to $12.30 which may be due to expected flat advertising revenues, he said.
Other media stocks were mixed, with Fairfax Media adding four cents to $1.54 and Consolidated Media losing 7.62 per cent to $1.94.
The resource sector was also down at the close.
BHP Billiton lost 26 cents to $30.64 and Rio Tinto was down 70 cents to $39.20.
Commodity prices were "pretty stable'' overnight, with US copper down 1.6 per cent and the price of crude oil falling around 3.5 per cent, Mr Hancock said.
The financial sector was a mixed bag.
CBA finished $1.10 higher at $29.15, NAB closed 19 cents firmer at $19.20 and Westpac put on 6 cents to $16.49.
ANZ bucked the positive trend falling 4.27 per cent to $14.36 after JPMorgan's top-rated banking analyst Brian Johnson downgraded his recommendation on the stock from Overweight to Neutral.
Across diversified financials, Babcock and Brown dropped 10.8 per cent to 16.5 cents, and Centro Properties Group remained in a trading halt while discussions with its financiers over a $6.01 billion debt facility continued.
Retail stocks were also mixed.
Wesfarmers, owner of Coles Group, added 2.04 per cent to $16.53, David Jones shed 1.65 per cent to $4.17, and Billabong was down 5.61 per cent at $7.06.
Gold stocks were mixed by 4.23pm, with Newmont Mining adding 5.26 per cent to $5.60 while Lihir lost 3.38 per cent to $2.57 and Newcrest Mining dropped 60 cents to $29.00.
The spot price of gold in Sydney was trading at $US836.25 per fine ounce, up $US5.30 on Monday's close of $US830.95.
On the Sydney Futures Exchange the December share price index contract was down 29 points to 3575 points on a volume of 140,284 contracts.
Markets are battered again
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