At 10.15am (AEDT), the benchmark S&P/ASX200 index had fallen 39 points, or 1.1 per cent, to 3493.4, while the broader All Ordinaries was down 37.9 points, or 1.09 per cent, at 3430.2.
On the Sydney Futures Exchange, the December share price index contract was down 38 points at 3503 on a volume of 5619 contracts.
BHP Billiton shares lost 94 cents, or 3.42 per cent, to $26.56 and Rio Tinto shares reversed $1.91, or 5.88 per cent, to $30.59.
In the US, stocks tumbled in the final hour of trading on growing investor anxiety about the government's November employment report.
The Dow Jones industrial average fell 215.45, or 2.51 per cent, to 8,376.24.
The Standard & Poor's 500 index fell 25.52, or 2.93 per cent, to 845.22, and the Nasdaq composite index fell 46.82, or 3.14 per cent, to 1445.56.
Oil prices tumbled to their weakest levels since 2005 as investors fixated on mounting signs of recession in the global economy.
On the New York Mercantile Exchange, light, sweet crude for January delivery settled at $US43.67 a barrel, down $US3.12.
At home, Woodside Petroleum was down 96 cents, or 3.09 per cent, at $30.15, Santos dropped 68 cents to $12.67 and Oil Search lost nine cents to $4.14.
Austock Securities senior client adviser and strategist Michael Heffernan said the local market started in the red following on the back of Wall Street's weak lead.
"It started off pretty bleakly, down about one per cent, but it's staging a bit of a recovery at the moment,'' he said.
Mr Heffernan said the big miners were in the red, but the banks were moving into the green.
"Rio Tinto is holding us back again,'' he said.
"BHP Billiton of course is a different kettle of fish to Rio, with a strong balance sheet and low debt, but Rio is a bit of a worry.
"The banks have turned around quite significantly.
"ANZ are dragging the chain, but the others are doing alright.''
At 10.40am AEDT, Commonwealth Bank had gained 17 cents to $31.77, National Australia Bank was 23 cents higher at $19.69, and Westpac was up 26 cents at $17.20.
ANZ decreased 12 cents to $14.30.
Making news, Felix Resources confirmed there is takeover interest in the coal miner. Felix was up $2.42, or 44.49 per cent, at $7.86.
Fortescue Metals Group has suspended contracts on about two-thirds of its ore shipments, in an effort to switch to greater reliance on deals that require the buyer to freight the product. Fortescue was down 15 cents, or 6.1 per cent, at $2.31 at 10.46am AEDT.
Among gold stocks, Lihir was nine cents lower at $2.21, Newcrest eased seven cents to $24.58, while Newmont added eight cents to $4.72.
The price of gold in Sydney was $US765.40 per fine ounce, down $US5.20 on yesterday's close of $US770.60.
David Kirk has stepped down as chief executive of Fairfax Media, effective immediately. Fairfax fell five cents, or 3.36 per cent, to $1.44.
Other media stocks were stronger. News Corp - the parent company of the publisher of news.com.au - was up nine cents at $12.86, while its non-voting scrip was up 19 cents at $12.37.
Seven Network was up 30 cents at $5.80 and Ten Network lifted four cent to $1.065.
Qantas was down five cents at $2.24, while Virgin Blue was up one cent at 30 cents.
At 10.51am AEDT, the most traded stock was Dragon Mining, with 10 million shares traded worth $150,000. Its shares were down 0.5 cent, or 25 per cent, at 1.5 cents.
Market turnover was 222.06 million shares, valued at $759.02 million, with 252 stocks up, 309 down and 210 unchanged.
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