At 1615 AEST on Thursday, the benchmark S&P/ASX200 index was off 73.6 points, or 1.62 per cent, at 4,463.8, while the broader All Ordinaries index was down 73.4 points, or 1.59 per cent, at 4,539.2.
On the ASX 24, the September share price index futures contract was 82 points weaker at 4,430, with 34,379 contracts traded.
US STOCKS FALL
US stocks plunged overnight as the US edged closer to defaulting on its debt and the economy showed more signs of deteriorating. Major indexes gave up all of their gains for the month.
The Dow Jones industrial average fell 198.75 points, or 1.7 per cent, to 12,302.55, its biggest one-day drop since early June. It has fallen for four days straight.
The S&P 500 fell 27.05 points, or two per cent, to 1,304.89. The technology-focused Nasdaq composite index fell 75.17 points, or 2.7 per cent, to 2,764.79, its worst day in five months.
The Dow is headed for its worst weekly decline in nearly a year and is now 4 per cent below the 2011 high it reached on April 29. The S&P, which serves as a benchmark for most mutual funds, is also down 4 per cent from its recent peak.
Stocks have been falling overall since last Friday as an August 2 deadline for raising the US borrowing limit approaches. With no sign of a compromise between Republicans and Democrats in Washington, investors are becoming more fearful that the US's triple-A credit rating could be lowered or that the country might default on its debt. Either event would raise interest rates across the board and slow down the already weak US economy.
BRITISH STOCKS DOWN ON DEBT FEARS
Financials led Britain's top share index lower on Wednesday, on concerns that deeply-divided US lawmakers would fail to agree to a deal to avoid a default on the country's debts.
The UK benchmark index closed 73.15 points, or 1.2 percent lower at 5,856.58, albeit in thin volumes. The continued standoff by US politicians has prompted fund managers to steer clear of equities.
The Australian share market closed sharply lower as fears over a pending US sovereign debt default pulled Asian markets down.