Panicked investors shaved about $17 billion off the Australian share market, sending it to a two-year low on fears of a volatile Wall Street following the first downgrading of US sovereign debt by Standard & Poor's.
Monday was the fifth consecutive trading session that the domestic bourse closed in the red and added to the $95 billion that was wiped from the value of the local market last week.
The benchmark S&P/ASX200 index closed down 119.3 points, or 2.91 per cent, to below the psychologically significant 4,000-point mark at 3,986.1 points.
The broader All Ordinaries index slumped 113 points, or 2.71 per cent, to 4,056.7 points.
On the ASX 24, the September share price index futures contract was 111 points down at 3,939, with 87,832 contracts traded.
CMC Markets chief market strategist Michael McCarthy said the losses were broad based, with materials stocks faring the worst.
BHP Billiton was down $1.52, or 3.99 per cent, at $36.60 while fellow mining giant Rio Tinto was down $3.37, or 4.68 per cent, at $68.63.
Coal and Allied shares soared after its largest shareholders, Rio Tinto and Japan's Mitsubishi Development, made non-binding proposal for the shares in the miner they did not already hold.
Shares in Coal & Allied surged $25.20, or 27.69 per cent, to $116.20.
Mr McCarthy said investor confidence had been battered by a stream of negative news but that the selloff had been overdone.
"Investors are moving from crisis resolution to the next disaster without pausing for breath," he said.
"Last week, the market was taken by concerns about the US economic recovery, the concern being that it was stalling and bringing the rest of the world into a further recession.
"On Friday night, we saw jobs data (in the US) that directly contradicted that idea.
"So overall, the numbers are not suggesting that there is a recession coming..... and we're seeing corporate earnings coming through around that globe that are not consistent with the idea that the market is going backwards."
SURGE IN VOLUMES
Mr McCarthy said there had been a big surge in trading volumes on Monday, with more than double the usual contracts traded on the futures exchange.
He said the futures market had flipped around wildly all day.
Preliminary national turnover was 3.15 billion shares, worth $7.8 billion, with 196 shares up, 1,039 down and 313 steady.
The gold price hit a fresh all-time high of $US1,704.30 an ounce in Hong Kong trade, as Asian stocks tumbled.
Among gold producers, AngloGold Ashanti put on 27 cents, or 3.4 per cent, to $8.21 but Newcrest was 38 cents weaker at $38.82.
Making headlines on Monday, JB Hi-Fi posted an almost eight per cent fall in net profit to $109.70 million and revealed plans to expand.
JB Hi-Fi shares closed down 35 cents at $14.00.
The most traded stock by volume was Voyager Resources after the Mongolia-focused explorer announced a major new copper discovery in the South Gobi region.
Voyager shares finished up half a cent, or 10.2 per cent, at 5.4 cents after almost 125 million shares changed hands.
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