The Aussie dollar also plunged in afternoon trading, sinking to its lowest in more than five years against the US dollar and Japanese yen, as investors dumped assets deemed to be higher risk.

Renewed falls on Wall Street overnight cascaded across Asia-Pacific markets, fed in turn by worries about impending bank rescues in Europe.

Those doubts doused investor cheer that had briefly erupted after the RBA's surprise full percentage point cut in its official interest rate, which was soon matched in part by Australian commercial banks.

The benchmark S&P/ASX200 index closed 230.6 points, or 5pc, lower at 4388.1.

The drop easily erased yesterday's gain of 78 points and brings this year's losses to almost one-third.

The slide is second only to January 22's 7.1pc hammering.

"People are just throwing up their arms in despair," said Alex Moffatt, director at Joseph Palmer & Sons.

"We're seeing pretty close to capitulation selling."

The sell-off is being exacerbated by "program selling, which is totally unemotional", said Mr Moffatt.

Program selling is based on computer programs "that price the market and the volatility of the market and then jump on the back of it".

"So it almost becomes self-fulfilling," he said.

Markets across Asia also slumped.

In Tokyo, the Nikkei 225 share index shed more than 8pc, and falling to its lowest since late 2003.

Falls of 5pc or more were common from Mumbai to Singapore, while Jakarta's main share index sank more than 10pc.

All sectors of the local share market were lower, with commodities again leading the way.

The materials sub-index was off 6.3pc and the energy sub-index was down 7.1pc.

Financial companies also closed lower, with the sector down about 4.8pc.

The Australian dollar gave up most of yesterday's rebound, to trade recently at US68.70c.

Against the yen, it recently traded at 68.96.

Investors, meanwhile, are now pricing in a further 50 basis point cut by the RBA in its key rate to 5.50pc when its board next meets on November 4, Melbourne Cup Day, according to Credit Suisse.

Spot gold was recently trading at $US882.98 an ounce, up about $US10 for the day.