The share market has posted its largest daily fall since mid-November, with the mining, energy and healthcare sectors the worst performers.
The benchmark S&P/ASX200 index dropped 52.6 points, or 0.87 per cent, to 6,022.8 points.
Phillip Capital senior client adviser Michael Heffernan said Wall Street was the main influence, as there was no major local news to drive down shares.
The Dow Jones Industrial Average dropped as Apple was hit by reports of waning demand for the iPhone X, and defensive sectors weakened as US 10-year treasury yields hit their highest since 2014.
“It’s like Pavlov’s dog here,” Mr Heffernan said.
“If the American market has a fall of about over half a per cent, it’s certain that our futures market at the beginning of the day will show that we’re going to be down by a certain amount, and then we exaggerate what the US has done.
“And that’s exactly what we’ve done today without any major local impetus.”
Mr Heffernan said a drop in oil prices put pressure on energy stocks, with Woodside Petroleum falling 2.2 per cent to $33.37, Santos losing 1.7 per cent to $5.16, and Oil Search 1.3 per cent weaker at $7.71.
Stocks with strong US exposure, such as blood and vaccines group CSL and investment bank Macquarie Group, retreated as the US dollar rose.
CSL dropped 1.6 per cent to $147.50 and Macquarie dropped 1.6 per cent to $103.48.
BHP Billiton lost 1.3 per cent to $30.34, Rio Tinto backtracked 0.7 per cent to $78.56, and Fortescue Metals fell 0.4 per cent to $5.07 despite reporting record low iron ore production costs for the three months to December.
All four major banks also lost ground, with National Australia Bank the worst performer, retreating 0.6 per cent to $29.07.
Village Roadshow plunged 10.7 per cent to $3.67 after the theme parks and film distribution company warned that its half year results will be substantially weaker than a year ago.
The Australian dollar retreated from its highest level in more than two years, which it hit on Friday night, as the US dollar stabilised.
ON THE ASX:
* The benchmark S&P/ASX200 index was down 52.6 points, or 0.87 per cent, at 6,022.8 points.
* The broader All Ordinaries index was down 52.3 points, or 0.85 per cent, at 6,135.3 points
* The SPI200 futures contract was down 50 points, or 0.83 per cent, at 5,960 points
* National turnover was 3.8 billion securities traded worth $5.3 billion.
CURRENCY SNAPSHOT AT 1700 AEDT
One Australian dollar buys:
* 80.66 US cents, from 80.89 US cents on Monday
* 87.67 Japanese yen, from 88.01 yen
* 65.23 euro cents, from 65.16 euro cents
* 57.46 British pence, from 57.24 pence
* 110.20 NZ cents, from 110.33 NZ cents
The spot price of gold in Sydney at 1700 AEDT was $US1,335.14 per fine ounce, from $US1,348.50 per fine ounce on Monday.
BOND SNAPSHOT AT 1630 AEDT:
* CGS 4.50 per cent April 2020, 2.0848pct, from 2.0774pct on Monday
* CGS 4.75pct April 2027, 2.8188pct, from 2.8089pct.
Sydney Futures Exchange prices:
* March 2018 10-year bond futures contract at 97.135 (implying a yield of 2.865pct), from 97.145 (2.855pct), on Monday
* March 2018 3-year bond futures contract at 97.73 (2.27pct), unchanged.
(*Bond market closes taken at 1630 AEDT previous local session; currency closes taken from 1700 AEDT previous local session)