The Australian stock exchange has plunged in what is shaping up to be its worst day of trading in over two years, playing catch-up to a brutal sell-off on Wall Street as a holiday-shortened trading week kicked off.

The benchmark Standard & Poor/ASX200 index 319.8 points, or 4.58 per cent, to 6612.2 at midday on Tuesday, its lowest level since February 2021. By the day’s close it had recovered slightly to be at 6686 – down 3.5 per cent for the day.

The broader All Ordinaries was down 4.96 per cent to 6795.6 at midday. It also recovered slightly, closing at 6881.2.

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The ASX200 is now down 7.3 per cent this month, 10.5 per cent in 2022 and 12.7 per cent from its August 2021 peak. It has dropped in five of the past six sessions, with the losses eclipsing 1 per cent in all but one of days.

Tuesday’s plunge was the worst since a 5.01 per cent selloff on May 1, 2020, with every sector down at least 1.8 per cent.

Tech had plunged by 7.6 per cent, materials were down 5.8 per cent, and financials dropped 4.5 per cent.

“The sharpness of the fall suggests that we’ve entered a new and uglier phase of the market,” Tiger Brokers Australia chief market strategist Michael McCarthy said.

“None of us know know the future with certainty, but that sort of sharp drop suggests that things are not going to settle down immediately, and we could be looking at further significant changes in prices.”

Cryptocurrencies have been “absolutely thumped”, Mr McCarthy noted, with Bitcoin trading for a third of its value from eight months ago, and home prices are under pressure.

It is all linked to US inflation figures released on Friday night coming in far hotter than expected at 8.6 per cent, which means the US Federal Reserve will have to hike rates and withdraw monetary stimulus more quickly than the markets would have liked.

Among blue chip shares early on Tuesday, BHP was down 5.7 per cent to $43.56 while Rio Tinto and Fortescue had fallen 5.8 per cent and 8.1 per cent, respectively.

The big four banks were down between 5.5 and 6.0 per cent.

Afterpay owner Block had dropped 17.8 per cent to $90.13 as Bitcoin fell 15.9 per cent to $US22,485, its lowest level since December 2020.

Overnight, US equities slumped after the S&P 500 index settled into bear market territory, traditionally signalled by a cumulative decline of more than 20 per cent.

The Dow Jones Industrial Average fell 2.79 per cent to 30,516.74, the S&P 500 lost 3.88 per cent to 3,749.63, and the Nasdaq Composite dropped 4.68 per cent to 10,809.23.

-with AAP