Global markets went into convulsions after US lawmakers rejected a $US700 billion ($A840 billion) rescue of the financial system, raising the prospect of deeper financial turmoil.
More than $53 billion has been wiped from the local sharemarket after US markets suffered a record drop overnight as the $840 billion Wall Street bailout collapsed.
"The important question is whether the system can save itself before the (Dow) moves toward 9,000," said Douglas McIntyre at 24/7 Wall Street. "That would wipe out over five years in gains."
Crude oil plunged more than $US10 a barrel as investors scrambled in the face of panicked markets.
"The US is looking at a severe recession if Congress fails to pass some sort of package."
The panic extended to Brazil, where the Sao Paulo stock market plunged nearly 10 per cent and suspended operations. Canada's S&P/TSX slid 7.1 per cent and Mexico's Bolsa tumbled 6.2 per cent.
New York's main contract, light sweet crude for November delivery, tumbled $US10.52 a barrel to close at $US96.37.
In the first 20 minutes of trade, the market dropped by 5.4 percent after US stocks suffered their biggest ever loss overnight.
MQG.AX , shares dropped, while mining giants Rio Tinto
and BHP Billiton (BHP.AX
BHP BHP.AX , 31.770, -2.470, -7.210%) also plummeted on fears that a global downturn will hurt demand for commodities.
Just prior to the local market open, Prime Minister Kevin Rudd and Treasurer Wayne Swan attempted to soothe nervous markets and pledged to lobby the US to pass the Wall Street bailout plan.
In New York, the Dow Jones lost 778 points, its largest point decline in history, and posted its biggest daily percentage slide since the 1987 stock market crash. The benchmark S&P 500 also had its worst day in 21 years after the House voted down the bailout plan by a count of 228 to 205.