The benchmark S&P/ASX200 index closed Tuesday down 99.9 points, or 1.41 per cent, to 7,008.9, while the All Ordinaries was down 109.9 points, or 1.5 per cent, to 7,201.1.
The ASX200 closed at its lowest level since its January 3 selloff and is now down 0.4 per cent since the start of the year, despite a 6.2 per cent rally in January fuelled by China's reopening.
"What I see in the market is pure panic at the moment," City Index analyst Matt Simpson told AAP.
"I would have thought there was less fear for the banking sector in Australia, based on what happened to US, where arguably they're less regulated anyway.
"I just think we're at that point in the cycle where it's sell now, ask questions later. Get out whilst you can."
There was some consolidation for those looking for a silver lining: While ASX200 was below 7,000 for much of the day it did manage to claw to about that level in the final hour of trading. Tuesday's close was also right above the index's 200-day simple moving average of 7,004, a key technical level.
But Mr Simpson said while the market was now reassessing whether central banks would pause their campaign of rate hikes or even cut rates in a few month's time, he didn't forsee a strong rally on Wednesday.
"I think it might be more the case of what I call a shell-shock stage, where prices might rattle around for a few days of waiting and getting a feel for what's going on, sort of nervous watching to see if you want to get involved in this or not."
Every ASX sector finished in the red on Tuesday, with tech stocks collectively the biggest losers, falling 3.4 per cent.
Computershare, which tends to benefit from higher rates as it holds billions in client funds, fell 7.7 per cent to $21.90. Wisetech Global dropped 2.3 per cent.
The financial sector finished down 1.4 per cent after being down as much twice that.
ANZ and NAB both dropped 1.5 per cent, to $23.04 and $28.10, while Westpac fell 0.4 per cent to $21.41 and CBA managed to finish higher, up 0.2 per cent to $95.28.
Insurance companies had a tough day as the market reacted to the odds that their bond portfolios wouldn't be the beneficiaries of rising rates.
QBE dropped 3.7 per cent, Suncorp fell 3.6 per cent and IAG closed down 2.5 per cent.
On the flip side, realestate.com.au owner REA Group rose 1.0 per cent and Domain Holdings grew 0.9 per cent, with investors apparently betting that a pause in rate hikes would boost the property market.
The heavyweight mining sector finished down 1.6 per cent, with BHP dropping 1.8 per cent to $45.03, Fortescue retreating 1.4 per cent to $21.45 and Rio Tinto subtracting 0.8 per cent to $117.52.
Goldminers were a rare bright spot on the market, with Newcrest up three per cent and Northern Star adding 1.4 per cent as the price of the safe haven metal rose above $US1,900 for the first time since early February.
Cryptocurrencies were also soaring, with Bitcoin up 10 per cent to a three-week high of $US24,500 ($A36,370).
In more traditional currency markets, the Australian dollar was buying 66.49 US cents, from 66.61 US cents at Monday's ASX close.
Looking forward, key monthly inflation data for the United States will be released late on Tuesday, Sydney time.
"If we get softer inflation, that pretty much confirms a pause for the Fed, and I think markets might calm down a little bit," Mr Simpson said.
The US central bank will announce its latest decision on rate hikes a week from Wednesday, Australia time.
ON THE ASX:
* The benchmark S&P/ASX200 index finished Tuesday down 99.9 points, or 1.41 per cent, at 7,008.9.
* The broader All Ordinaries dropped 109.9 points, or 1.5 per cent, to 7,201.1.
CURRENCY SNAPSHOT:
One Australian dollar buys:
* 66.49 US cents, from 66.61 US cents at Monday's ASX close
* 89.01 Japanese yen, from 89.50 Japanese yen
* 62.13 Euro cents, from 62.12 Euro cents
* 54.70 British pence, from 55.00 pence
* 107.06 NZ cents, from 107.72 NZ cents
10°C