The benchmark S&P/ASX200 index was down 1.72 per cent to 6,744.6 points at 12pm on Tuesday, while the broader All Ordinaries was down 1.67 per cent to 6,849.1 points.
Earlier it had slumped by 2 per cent.
Consumer staple and tech shares had the largest losses by midday, falling 2.53 per cent and 2.36 per cent respectively.
Coles lost 3.39 per cent, Woolworths sank 2.59 per cent and IGA supplier Metcash — which announced a $237.4 million writedown against its major food division on Tuesday — fell 1.19 per cent.
The volatile WAAAX tech shares — WiseTech, Afterpay, Appen, Altium and Xero — were down by between 2.23 per cent and 3.91 per cent.
The Australian volatility index, a measure of local investor sentiment sometimes called the “fear index”, surged by more than 15 per cent to its highest level since mid-October as the total value of shares trading on the ASX diminished by more than $40 billion on Tuesday.
Wall Street slipped overnight following US data indicating manufacturing activity contracted in November for the fourth consecutive month and after US President Donald Trump said he would restore tariffs on steel imported from Brazil and Argentina.
The Dow Jones Industrial Average closed down 0.95 per cent, the S&P 500 was down 0.86 per cent and the tech-heavy Nasdaq Composite was down 1.12 per cent.
Each sector in the Australian market lost at least 1.26 per cent, with industrials the best performing segment of the day.
Telstra was down 2.08 per cent and pharma giant CSL was down 1.25 per cent.
Mining giant BHP lost 1.36 per cent to $37.79, Rio Tinto was down 0.81 per cent to $96.73 and Fortescue Metals was down 1.35 per cent to $9.885.
The big four banks were lower, with ANZ down 1.36 per cent to $24.65, Commonwealth down 1.88 per cent to $79.90, NAB down 1.43 per cent to $25.53 and Westpac down 1.02 per cent to $24.35.
Bendigo and Adelaide Bank was down 0.70 per cent, Bank of Queensland was down 2.26 per cent and Macquarie Group was down 1.87 per cent.
Gold miners were not spared in the morning rout, with Newcrest down 2.79 per cent, Evolution down 0.50 per cent and Northern Star down 1.17 per cent.
Energy shares were able to stem losses to 1.29 per cent as Santos dipped 0.12 per cent, reversing early gains, after the oil and gas producer upgraded its 2025 production outlook.
Caltex was down 0.75 per cent after it said an $8.6 billion takeover offer from Canadian convenience store operator Alimentation Couche-Tard undervalued the company.
The Reserve Bank of Australia will announce its decision on the cash rate at 1430 AEST on Tuesday, with most economists expecting no change. The Aussie dollar is buying 68.21 US cents from 67.75 US cents on Monday.