The Australian sharemarket is at its lowest level since December 16, 2005 following the lead of US markets which closed 4% lower overnight.
The US market has been rattled with fears over the fate of a $US700 billion banking bail-out hung up in Congress.
In early trade, the benchmark S&P/ASX 200 index fell as much as 2.7%, or 127 points, to 4634.
Leading the falls were mining giant BHP which dropped as much as 5.6%, or $1.77, to $29.90. Its rival Rio Tinto dropped to as low as $86, a drop of 5.8%, or $5.25.
ANZ led falls among the banks shedding as much as 58 cents, or 3.1%, to $18.40, NAB sank as much as 60 cents, or 2.3%, to $25.10, Westpac gave up 6 cents, or 0.3%, to $23.45 and Commonwealth Bank lost $1.14, or 2.5%, to $44.26.
Shares in Macquarie Bank shed as much as $1.58, or 4.1%, to $36.88.
Overseas shares in BHP traded as low as $29.59, a level not seen since May of 2007, and far below the $50 range the stock traded in May of this year.
"It puts us quite a way back," said ABN Amro's Lisa Jarvis, said of BHP's fall because it comprises so much of the S&P/ASX-200 index.
"As resources are key to Australia, BHP's share prices is very much a reflection of our market."
She noted offshore investors, many of whom hold BHP as part of their portfolio, use it as an indicator of the Australian market.
"We're already hearing stories of steel prices falling and copper prices coming off."
The US House of Representatives is planning to vote on a revised rescue package for Wall Street after the close of the market today in Australia. The vote comes after Congress, bowing to voters' outrage in an election year, spurned the original $US700 billion package last week, sending global markets into a tailspin.
The S&P/ASX 200 closed down 30% below its November 1, 2007 high of 6828 points yesterday, after dropping as much as 32.6% on September 30.
Angus Gluskie of White Funds Management said fears for global growth in the aftermath of the banking crisis will flow through to resources stocks this morning.
''There's a big sense of negativity that the general slowdown in global growth is going to have a big impact on metals prices and producers,'' he said. "I think we'll see financials trading stable-to-varied but the cyclicals will be major movers.''
Cyclical stocks include resource companies and any business whose revenues are tied to economic cycles.
The dollar fell this morning, touching 77 US cents - its lowest level since November 2006 - over concerns about the outlook for Australia's resource-centred economy.
The Australian dollar is being bounced around two factors, Mr Gluskie said, with a surplus in the trade balance announced yesterday being a positive for dollar.
That strength is counterbalanced by the perception of the Aussie as a commodity currency.
''If investors think commodities are going down they'll think the Australian dollar will follow that pattern.''
The trade weighted index, an average value of the Australian dollar compared with the currencies of major trading partners, remains at a 14-month lows, according to Bloomberg.
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