The benchmark S&P/ASX200 index closed the day down 286.6 points, or 6.7pc, to 4013.4, after dipping below 4000 points in afternoon trading.

The Australian dollar fluctuated across a broad range. It traded recently at US 67 cents after earlier dropping below US65c. The currency was also worth 67.15 yen.

"There's no amount of analysis that can justifiy the moves you're seeing at the moment," said Peter Strachan of StockAnalysis.

"A lot of people have been in the market since 1990s and have not had to deal with any major economic crisis."

Today's loss erases Monday's record rally of 5.6pc, when coordinated government efforts to shore up the financial sector and stem market panic lured buyers back into the market.

Only three of the top 200 companies ended the day higher.

Across the Asian region, the falls were worse, with the Nikkei 225 recently down 11pc, the Hang Seng falling 7.6pc and Korea's Kospi off about 9pc.

Companies are cutting jobs to cope with falling demand, with Ford today confirming that it would slash 450 jobs in Victoria, adding to the 350 job losses it announced recently.

"The weakness of the stockmarket reflects a deepening sense of economic gloom," said economist Ray Attrill of 4Cast Ltd.

"Declines up until the end of last week arguably hadn't priced in the risk that we're entering a deep and protracted recession."

Shares fell across all sectors, with materials the biggest loser, sinking 12pc while energy stocks lost 9.1pc.

Financial stocks generally outperformed the market, with the sector falling 4.6pc for the day.

Investors are pricing in an 82pc chance that the Reserve Bank will cut its key cash rate by 75 basis points, or 0.75 percentage points, to 5.25pc when its board next meets.

Sydney academic Steve Keen today predicted rates may fall to 0pc by 2010.