At the 4.15pm (AEST) close, the benchmark S&P/ASX200 index had fallen 106.9 points, or 2.27 per cent, to 4600.4 points, while the broader All Ordinaries index lost 105.4 points, or 2.2 per cent, at 4683.2 points.
It's the biggest one-day loss since June 7, 2010, the SMH reports.
On the ASX 24, the June share price index futures contract was 106 points lower at 4603 points, with 41,920 contracts traded.
The S&P/ASX200 index closed at its weakest level since March 17.
CMC Markets sales trader Ben Taylor said that despite better than expected retail sales figures for Australia in April, which were released today, investors were focused on a slowdown in global economic growth.
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"A lot of the drive is coming from overseas markets at the moment," he said.
"There was a shocking set of (manufacturing) PMI data (purchasing managers' index, used to measure strength in the sector) for the UK, China and euro zone, and then US markets fell last night... Moody's downgrade of Greek debt put the nail in the coffin."
Jobs and manufacturing data showing deep weaknesses in the US economy sent the US stock market plunging today, wiping out the gains of previous days.
The Dow Jones Industrial Average dropped 279.14 points, or 2.22 per cent, to 12,290.65.
Mr Taylor said the various data did not show a good picture of growth.
He said the slowdown had come at a time when markets were expected to be kicking into a higher gear of recovery.
Mr Taylor said he expected the negative sentiment to last several weeks until bargain-seekers returned to the market.
Among resource stocks on the local bourse BHP Billiton fell 98 cents to $43.55.
Rio Tinto was down $1.45 at $80.10 as it said a tie-up with Chinalco, China's largest alumina producer, would give it unprecedented access to explore resource-hungry China for copper and other minerals.
Among the major banks, National Australia Bank dumped $1.64, or 6.29 per cent, to $24.43 as it went ex dividend and investors worried over the bank's European exposures.
The Commonwealth Bank backtracked 96 cents to $49.40, Westpac retreated 50 cents to $21.45, and ANZ was 56 cents weaker at $21.44.
Qantas descended two cents to $2.09 as it said it had carried seven per cent more passengers in April compared with March but operations had been affected by one-off events.
Wesfarmers was 54 cents lower at $32.59 as it said heavy rainfall earlier this year at its Curragh coal mine in Queensland had forced it to downgrade sales guidance.
Preliminary national turnover was 2.21 billion securities worth $5.73 billion, with 911 stocks down, 247 stocks up and 368 unchanged.
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