The sharemarket recorded its biggest one-day fall for nine months after minutes from the US Federal Reserve's recent policy-setting meeting revealed unease about the bank's stimulus efforts.
The benchmark S&P/ASX 200 closed down 2.3 per cent at a six-day low of 4980.1 - back below the psychological 5000 level. The index hit a 4 1/2-year high of 5106.6 on Wednesday.
Asian stockmarkets reflected worries about the premature withdrawal of quantitative easing. Shanghai, Hong Kong and Tokyo benchmarks all traded down.
"It's probably not enough to stop the uptrend in shares but it does look as if the Fed is starting to give more weight to the costs of quantitative easing and less to the need to stimulate the economy," AMP Capital Investors director of investment strategy and chief economist Shane Oliver said.
CMC Markets sales trader Ben Taylor said in a research note: "The FOMC (Federal Open Market Committee) minutes revealed the Fed is currently sitting in uncharted territory without a clear map to guide them home.
"Disagreement over the current path is causing concern for a market that demands certainty.
"This indecision has placed pressure on metal markets today and especially the gold market, which had already suffered huge selling pressure from investors seeking riskier returns.
"Flagging tensions in Iran (have) also given traders reason to sell off oil contracts, which (have) also taken a hammering following the FOMC minutes."
Earlier yesterday, the S&P 500 fell 1.2 per cent, its biggest fall since mid-November, after Fed minutes showed a growing number of officials are concerned the central bank's easy-money policies could generate inflation or financial instability. Locally, most of the decline came in afternoon trade, with the market down a little under 1 per cent at noon.
Every sector went backwards, with energy stocks the heaviest hit after tumbling 4.55 per cent, according to IRESS data.
Materials stocks and financials - the two largest components of the Australian market - dropped 3.44 per cent and 2.38 per cent, respectively.
The resources sector suffered after a weak sales report from mining-equipment maker Caterpillar and a fall in prices on the London Metal Exchange. BHP Billiton, Rio Tinto, Fortescue Metals and Newcrest were down between 2.4 per cent and 3.7 per cent. Woodside Petroleum shed 2.9 per cent following downgrades from Citi, Macquarie and Morgan Stanley.
Origin Energy dropped 7.5 per cent on a lower than expected first-half profit, a full-year earnings downgrade and a cost blowout at a liquefied natural gas project. It was also hit by a credit rating downgrade from Standard & Poor's.
The big banks all fell more than 2 per cent. ANZ eased 76c to $27.98, Commonwealth Bank dropped $2.04 to $64.81, National Australia Bank finished down $1.14 at $29.42 and Westpac ended 86c lower at $29.49.
"Many institutions are happy to buy the dips; the market is up 28 per cent in nine months so investors seeking to buy good quality stocks on sell-offs welcome weak days like today," Goldman Sachs institutional sales and trading executive director Richard Coppleson said. "They'd love to see it fall a little bit more."
Among companies that bucked the trend were Qantas, Adelaide Brighton and IAG, which all reported yesterday. They rose between 2.4 per cent and 2.8 per cent on stronger than expected earnings. Brambles and Goodman also rose after posting their results.
