At 12.00pm (AEST), the S&P/ASX200 index slumped 110.4 points lower, or by 2.86 per cent, at 3745.7, while the broader All Ordinaries index was down 111 points, or 2.89 per cent, at 3831.
Head of research at Shaw Stockbroking, Tim Buckley, said concerns about the US banking sector was dragging the market down.
"The whole market is generally down, and its concern over the US economy at the heart of the problem,'' Mr Buckley said.
"We've still got a long, rough patch to go.
"Across the board, you can see it's only the defensive stocks that have been doing well, that is, the ones that missed out on the rally of the past few weeks are now starting to perform.''
Financials were in negative territory.
Australia's biggest bank, Westpac, was 35 cents down at $20.25, while NAB was down 39 cents at $21.33 and ANZ fell 42 cents to $15.29.
Commonwealth Bank was the biggest loser falling 97 cents, to $35.77.
Resources were also hurting in midday trade.
The price of Rio Tinto shares fell sharply amid speculation the mining giant may alter or scrap its planned $US19.5 billion ($25.89 billion) deal with Chinese company, Chinalco.
At 12.06pm, its shares had plummeted 10.65 per cent to $58.30, while rival BHP lost 5.05 per cent, to $32.69.
On the Sydney Futures Exchange, the June share price index futures contract had dropped 104 points to 3736, on a volume of 14,954 contracts.
