The local share market has fallen significantly for a second day after service-sector activity in the United States raised concerns that interest rates would need to stay higher for longer.
The benchmark S&P/ASX200 on Thursday finished down 86.1 points to 7,171.0, a drop of 1.19 per cent.
The broader All Ordinaries fell 86.7 points to 7,374.9, a 1.16 per cent drop.
The losses came after a US report known as the ISM Services PMI came in at its hottest levels since February, beating the highest estimates from analysts.
The data showed businesses paying more for inputs, indicating inflation remains a concern.
Bond yields rose and US equities fell on the news, with the S&P500 closing down 0.7 per cent.
Domestically, the Australian Bureau of Statistics reported Australia's trade surplus narrowed by $2.2 billion to just over $8 billion in July - softer than consensus forecasts.
"Economies suffering from elevated inflation and slowing growth breed rangebound share markets," Capital.com senior analyst Kyle Rodda wrote.
"Ultimately, that’s what we are seeing for the ASX200," he said, adding that fears over growth in China were also weighing on the index.
The sell-off was the ASX200's worst since a 1.5 per cent drop on August 15 and left the index at its lowest level since August 28.
Every sector was in the red with mining the hardest hit, falling 3.2 per cent in its worst losses since March as BHP traded ex-dividend.
The Big Australian fell 5.2 per cent to $43.71, while Rio Tinto dropped 2.5 per cent to $113.10 and Fortescue retreated 2.3 per cent to $19.87.
Newcrest fell 0.4 per cent to $25.57 as the Federal Court approved October 13 as the date for shareholders to vote on the goldminer's pending acquisition by US-based Newmont Corp.
All the Big Four banks were lower, with ANZ falling 0.8 per cent to $24.87, CBA down 0.6 per cent at $100.90, Westpac dipping 0.3 per cent to $21.12 and NAB closing 0.2 per cent lower at $28.59.
Qantas fell 2.3 per cent to an 11-month low of $5.57 following a string of bad headlines including allegations it sold tickets for already cancelled flights.
Coal miners Whitehaven fell 3.0 per cent, New Hope dropped 1.5 per cent, Yancoal retreated 1.2 per cent and coking coal producer Coronado dropped 5.7 per cent following the NSW government's plans to hike coal royalties to raise $2.7 billion.
Audinate was in a trading halt after the audio-visual networking company announced a $50 million capital raising at a nine per cent discount.
Bubs was flat at 16.5c after announcing plans for a clinical trial in the US as part of a process to win permanent approval to sell its goat milk infant formula there after emergency shortages in America last year saw it win temporary approval along with a shout-out from US President Joe Biden.
The Australian dollar had recovered slightly against its US counterpart, buying 63.84 US cents, from 63.75 US cents at Wednesday's ASX close.
ON THE ASX:
* The S&P/ASX200 index finished Thursday down 86.1 points, or 1.19 per cent, at 7,171.0.
* The All Ordinaries dropped 86.7 points, or 1.16 per cent, to 7,374.9.
CURRENCY SNAPSHOT:
One Australian dollar buys:
* 63.84 US cents, from 63.75 US cents at Wednesday's ASX close
* 94.19 Japanese yen, from 94.13 Japanese yen
* 59.57 Euro cents, from 59.48 Euro cents
* 51.13 British pence, from 50.81 pence
* 105.51 NZ cents, from 108.52 NZ cents
