The overnight sell-off in global markets did not spare Australia, with the local share market shedding about $50 billion in value, while Asian shares fell even further.
The benchmark ASX 200 index closed down 2.7 per cent at 5,883, while the All Ordinaries index slumped 170 points to close below 6,000 points for the first time in more than half a year, at 5,993.
It is the worst one-day fall since the market slumped 3.2 per cent during the "bondcano" in February this year, when fears of rising US interest rates sparked an intense two-day sell off.
Asian markets fell even more steeply, with Shanghai down 4.6 per cent, Tokyo's Nikkei off 4.1 per cent and Hong Kong's Hang Seng down 3.8 per cent by 4:25pm (AEDT).
With fears of rising US interest rates again one of the main contributors to last night's plunge, this sell-off could be dubbed "bondcano mark two".
Every sector was in the red, with technology (-4.9 per cent), energy (-4 per cent) and healthcare (-3.5 per cent) absorbing the biggest losses.
Earlier this morning, Wall Street suffered its worst trading day in eight months, with the Dow Jones Industrial Average plunging 832 points to 25,599.
Every sector within Wall Street's S&P 500 also fell heavily, with big-name technology stocks like Facebook and Apple among the biggest drags on the US market.
The negative sentiment was also reflected in European markets, with Paris, London and Frankfurt ending their sessions firmly in the red.
Traders 'hit square in the chops'
Stockbroker Marcus Padley said there was no particular news overnight to explain the sudden market drop.
"You'll find a lot of commentators amplifying all the stories that we've been talking about for the last couple of months," he said.
"Things like rising US interest rates, the Chinese economy slowing, the technology sector possibly seeing a peak in demand.
"But the reality is overnight that the market has been buoyed on very positive sentiment and the herd has found a reason to change mood."
Pepperstone's head of research, Chris Weston, agrees that there was no single, clear cause for the sudden sell-off, which aggravated the market reaction.
"Volatility has made a comeback in a big way, and it has seemingly come out of nowhere and hit traders square in the chops," he wrote in a note at the end of the day.
"Without seeing the institutional flow, it feels as though this is a mix of forced selling, absolutely no buyers, and naturally, in this environment, the short sellers are having a field day aligning positions to what is a falling knife.
"The fact that there is no one smoking gun breeds uncertainty, as the market craves to understand what is the trigger mechanism so they can understand what could be the circuit breaker to gain confidence to buy the dip — which is what everyone is programmed to do these days."
InvestSmart chief market strategist Evan Lucas said, while there was no obvious overnight catalyst, a few pieces of key economic data over the past week have shifted market sentiment.
"There were several things that were very, very positive economic news, which markets took as a bad sign," he said.
"They have finally realised that the US Federal Reserve is not only on a hiking path but on a path that is actually justified."
US employment data out on Friday showed an unemployment rate of just 3.7 per cent — the lowest since 1969 — with wages growth running just below 3 per cent, compared to Australia where it is closer to 2.
The most recent figures also put US economic growth at a very strong annual rate of 4.2 per cent.
Expectations of further official interest rate rises have seen bond prices fall and yields, or interest rates, on US 10-year treasury bonds rise to seven-year highs around 3.2 per cent.
As the returns on 'risk-free' assets, such as these bonds rise, the attractiveness and price of riskier assets, such as shares, tends to fall.
Tech wreck to drive 'significant correction'?
The hardest-hit sector on US markets was technology, with the Nasdaq diving more than 4 per cent, compared to the 3.3 per cent slide for the broader S&P 500 index.
Mr Lucas said the tech sector was long overdue for a substantial correction after an overenthusiastic boom.
"A lot of money has been flowing into them very, very quickly for quite a long time, almost indiscriminately of the underlying earnings of the companies," he said.
Mr Padley said the tech sector plunge was "visible on a 20-year chart", and was a sign that traders now believed the peak growth in mobile devices and social media was behind us.
"The ingredients are there for a significant correction and corrections do start fast, and we've certainly seen a fast start," he said.
"A lot of overvalued stocks, which we've ignored because the momentum of the market was so good, but at some time the market has to pay the price — it looks like it's going to start paying that price as of today."
However, Mr Lucas said corrections were a normal part of a healthy share market.
"Since 1900, on average, there is one correction a year [on Wall Street]," he said.
"It normally goes for about 50-55 days, of those corrections less than 20 per cent turn into bear markets — a bear market is a 20 per cent decline — and, even with that, the bounce back tends to be about one-and-a-half times."
Australia's relatively small tech sector — which Evan Lucas said was about 2 per cent of the ASX compared to 30 per cent on Wall Street — has also been hit hard.
Wisetech closed down 10.5 per cent to $16.43, Appen down 10.3 per cent to $11.25 and Afterpay was also off 11.1 per cent to $13.76.
Falls elsewhere have been fairly indiscriminate across the major sectors.
Among the hardest-hit big-name Australian stocks were BHP (-3.8 per cent), Woodside Petroleum (-3.6 per cent), Rio Tinto (-3.2 per cent) and Qantas (-3.8 per cent).
The big four banks also continued to slide sharply: ANZ (-3.2 per cent), NAB (-2.6 per cent), Westpac (-2.6 per cent) and the Commonwealth Bank (-2.9 per cent).
The Australian dollar was buying 70.7 US cents shortly around 4:20pm (AEDT).