Australian shares had their biggest one-day fall since September 2020 as investors panicked about interest rates rising sooner than expected.
The market lost 2.74 per cent on Thursday and all share categories dropped after minutes of the US Federal Reserve December meeting showed discussion about earlier rate hikes to slow inflation.
Technology shares were most affected and plunged 6.37 per cent.
The biggest ASX technology company, Afterpay, lost more than 10 per cent to $71.85.
Financial software vendor Xero and cargo management vendor WiseTech Global each lost close to seven per cent.
Property shares were next most affected and lost 4.43 per cent.
There were losses of a little more than three per cent for the healthcare, consumer discretionary and telecommunications categories.
The widespread selling followed US markets closing lower. The Nasdaq dropped more than three per cent.
RBC Capital Markets' US economist Tom Porcelli said the Federal Reserve was responding to inflation expectations that bordered on unhinged.
He said the US central bankers were more worried about inflation than anything else.
"The market is right to think a March (rate) hike is nearly a done deal," he said.
CommSec chief economist Craig James said investors received a wake-up call from the Federal Reserve.
"They are highlighting the scope for a faster removal of monetary stimulus," he said of the policy-makers.
The widespread selling led the benchmark S&P/ASX200 index down 207.5 points, or 2.74 per cent, to 7358.3 points.
The All Ordinaries index closed lower by 220.3 points, or 2.79 per cent, to 7679.3 points.
REA Group and Seek were among major big name casualties. Each lost about seven per cent.
In company news, lender and credit provider Latitude offered to buy the consumer business of buy now, pay later provider Humm Group for about $335 million.
The payment will consist of 150 million Latitude shares and $35 million cash.
Latitude is offering Humm Group chief executive Rebecca James a role leading the combined business.
Latitude shares rose 1.78 per cent to $2.0, while Humm shares gained 2.23 per cent to 91 cents.
Insurance giant IAG finalised its reinsurance for this year at the same value - up to $10 billion - as last year.
The cost of the reinsurance has increased but IAG said this was in line with expectations.
Shares lost 0.68 per cent to $4.36.
The big banks followed the market and extended their losses during trade. The Commonwealth was worst and dropped 3.13 per cent to $99.97. NAB lost about two per cent while ANZ and Westpac shed a little more than one per cent.
Materials shares were the best performers and lost 1.45 per cent.
BHP and Rio Tinto each gained less than one per cent. Fortescue dipped by about one per cent to $19.75.
Evolution Mining completed its purchase of the Ernest Henry copper-gold mine in Queensland.
Evolution paid Glencore $800 million for the mine and will pay another $200 million in January next year.
Investors were not impressed and lowered Evolution shares by 5.39 per cent to $3.86.
Foreign exchange traders rushed for the US dollar in the wake of the projected interest rate hikes.
The Aussie dollar lost value as a consequence. It was buying 71.69 US cents at 1704 AEDT, lower from 72.29 US cents at Wednesday's close.
ON THE ASX
* The benchmark S&P/ASX200 index closed down 207.5 points, or 2.74 per cent, to 7358.3 points on Thursday.
* The All Ordinaries index closed lower by 220.3 points, or 2.79 per cent, to 7679.3 points.
* At 1704 AEDT, the SPI200 futures index was unchanged at 7268 points.
One Australian dollar buys:
* 71.69 US cents, from 72.29 cents on Wednesday
* 83.07 Japanese yen, from 83.83 yen
* 63.41 Euro cents, from 63.97 cents
* 52.99 British pence, from 53.41 pence
* 106.19 NZ cents, from 106.25 cents.