At 12.00pm (AEDT), the benchmark S&P/ASX200 index was down 52 points, or 1.63 per cent, at 3136.5, while the broader All Ordinaries index had lost 46.3 points, or 1.47 per cent, to 3102, the lowest since July 2003.
"It's been a terrible week," Burrel Stockbroking associate Peter Wright said.
"The insurers have been at epicentre and AMP, although its ex-dividend, is now below Henderson debacle in the UK.
"They just pick up on the international trends."
Insurers slumped, weighing heavily on the local bourse.
QBE fell 3.3 per cent to $16.49, AMP lost 9.2 per cent to $3.84, and AXA Asia Pacific shed 6 per cent to $2.97.
Banks were mixed
NAB added 23 cents to $17.00, Commonwealth Bank losing 2.5 per cent to $26.64, Westpac fell 26 cents to $15.53, and ANZ dropped 10 cents to $12.55.
Other financials declined.
Westfield shed 3.9 per cent to $9.29, Macquarie Group fell 5.4 per cent to $17.13 and Dexus Property slumped 9.5 per cent to 57 cents.
The big miners were mixed.
BHP Billiton, the biggest company on the index, declined 2.4 per cent to $27.62, while rival diversified miner Rio Tinto added 6 cents to $45.81.
Mr Wright said commodity stocks were starting to perform better on reports that stockpile levels had contracted significantly.
"That implies that demand is emerging, which is encouraging for commodity stocks," he said.
Gold stocks gained after the price of the precious metal rose.
Newcrest was up 3 per cent to $32.05, Newmont Mining gained 24 cents to $6.32 and Lihir Gold rose 12 cents to $3.12.
At 12.10pm, the spot price of gold in Sydney was $US932.75 per fine ounce, up $US19.65 on Thursday's local close of $USS913.10.
"Gold is a proxy for all the uncertainty at the moment," Mr Wright said.
"They're (gold miners) in the absolute sweet spot at the moment."
A 4 per cent fall on Wall Street overnight wiped away the previous day's gains, with more poor economic data, a warning from General Motors of possible bankruptcy, and ongoing uncertainty about the financial system sparking the sell-off.
The Dow Jones industrial average closed down 4.09 per cent to 6594.44. The S&P 500 index lost 4.25 per cent to 682.55 and the Nasdaq composite index dropped 4 per cent to 1299.59.
In company news, building products maker Boral will separate its cement division into two new divisions, with the old division's general manager to leave the company. Boral fell 2 per cent, to $2.45.
Bank of Queensland fell 6 cents to $6.51 as the regional lender announced it intends to cut 150 jobs.
Centro Properties Group has reshuffled its senior executive team in Australia to lead the company after it successfully renegotiated debt arrangements with its lenders earlier in the year. The stock lost 0.1 cent to 6.4 cents.
On the Sydney Futures Exchange, the March share price index futures contract was 36 points lower at 3133 on a volume of 11,316 contracts.
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