At the close, the benchmark S&P/ASX200 share index was up 1.3pc, or 51 points, to 3845.6, after earlier advancing more than 4.8pc.

"Stocks got saved on the bell," said James Drohan, private client adviser Ord Minnett, who noted that the market nearly finished only 10 points higher but received a spurt of buying just before the close.

"Most of the gain was in the last 10 minutes," he said.

"Considering where we were, 180 points higher, the trend is down."

The market could continue to fall until a few basic fundamentals such as US housing sales, interbank lending, and commodity prices improve, he said.

The Aussie dollar also gave up earlier gains as the negativity returned to the market.

It recently traded at US 63.66 cents after rising earlier to US65.2c, well above yesterday's level of just above US60c - a 5 1/2 year low.

Asia also reacted strongly to Wall Street's 11pc jump overnight and the expected Fed cut rate early tomorrow morning Australia time.

The Nikkei 225 gained 4.3pc, or 325.84 points, to 7947.76, while the Hang Seng Index was up 1.4pc, or 171.4 points, to 12,767.76.

Traders hope Fed rate cut will juice the US economy softening the worst effects of a recession on the world's largest economy.

There is also an expectation that the Reserve Bank of Australia will cut rates here when it meets next Tuesday.

But analysts are forecasting that Australia will enter a "technical recession" later this year, with JP Morgan predicting growth for 2009 of just 0.7pc.