The S&P/ASX200 tumbled 167.3 points on Tuesday, down 1.94 per cent, to 8,469.1, as the broader All Ordinaries dropped 177.4 points, or 1.99 per cent, to 8,738.3.
Sweeping sell-offs dragged the bourse to its lowest level since June as minutes from the Reserve Bank's latest board meeting hinted only a major turnaround in inflation could leave the door open to more interest rate cuts.
All 11 local sectors grinded lower, with technology and materials leading the losses, slipping 6.1 per cent and three per cent respectively.
Uncertainty around the return of US economic data after the government shutdown, jitters in Japan's bond markets and de-risking ahead of key US tech company earnings contributed to a perfect storm of risk aversion, IG Market analyst Tony Sycamore said.
"It's been just a day of throwing the water and the baby all out together," he told AAP.
"We're now looking at a seven per cent decline from the highs we saw just four weeks ago for the Australian stock exchange."
The past four weeks have wipe more than $200 billion from the exchange's total value since hitting its record high in mid October.
"No one would have predicted a move like this today, it's just now whether the market comes in and feels that this was an overreaction and and decides to buy back some stocks," Mr Sycamore said.
Technology stocks led the dive locally with Brisbane-based firm Technology One suffering its worst day in two decades, plummeting 17.2 per cent after its full-year profit missed expectations.
The heavyweight financials sector dragged on the broader market, slipping almost two per cent as all big four banks bled lower and Commonwealth Bank shares sunk to seven-month lows of $153.22.
Raw materials tumbled three per cent, as iron ore giants, gold producers and mixed miners alike were hammered.
Spot gold fell to $US4,019 ($A6,199) an ounce, dropping more than four per cent since Thursday, as hopes of a US interest rate cut continued to fade, combined with a stronger US dollar and an unwinding of safe-haven buying during the recent US government shutdown.
Lithium interests were the only major bright side on the materials sector with Pilbara Minerals and Liontown posting 3.3 per cent and 2.1 per cent increases respectively.
Construction materials giant James Hardie was another outlier, jumping 9.9 per cent as it boosted its forward guidance on the back of solid quarterly earnings.
It was the top-200's best performer, but remains at a 37.5 per cent discount to mid-August, when its unsolicited Azek takeover enraged shareholders.
Sellers drained 1.8 per cent from the energy segment in a broad sell-off, as oil and gas prices edged lower, and as investors also hit the sell button on coal miners and uranium producers.
Real estate stocks fell 1.4 per cent against an increasingly gloomy backdrop for future interest rate cuts, which also weighed on utilities and consumer discretionary plays.
The defensive consumer staples sector was the best performer, with a slump of 0.2 per cent acting as a morbid highlight in a grim day for the local market.
The Australian dollar is buying 64.82 US cents, down from 65.23 US cents on Monday at 5pm.
Looking ahead, the Australian Bureau of Statistics releases local wage price index data on Wednesday, ahead of US Federal Open Market Committee minutes later in the week, and the return of US jobs data on Friday.
ON THE ASX:
* The S&P/ASX200 lost 167.3 points, or 1.94 per cent, to 8,469.1
* The broader All Ordinaries faded fell points, or 1.99 per cent, to 8,738.3
CURRENCY SNAPSHOT:
One Australian dollar trades for:
* 64.82 US cents, from 65.23 US cents at 5pm on Monday
* 100.53 Japanese yen, from 100.85 Japanese yen
* 55.89 euro cents, from 56.22 euro cents
* 49.25 British pence, from 49.60 British pence
* 114.64 NZ cents, from 115.04 NZ cents
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