The market trimmed its losses in the afternoon but the S&P/ASX 200 index still broke through a key support level of 4800, at one point falling to 4706.7 and placing the index in an official bear market, defined as a 20 per cent fall from its recent high in April of almost 6000 points.

At close of trade the benchmark index ended 1.2 per cent, or 56 points, lower at 4775.7, while the broader All Ordinaries ended 1.2 per cent lower at 4826.5.

"It is hard to present a bull case when there is so much volatility and negativity around," Wilson Asset Management portfolio manager Matthew Haupt said. "It is hard to see any catalysts in the short term."

The index drew its biggest lift on Wednesday from Commonwealth Bank of Australia shares, which reported a 4 per cent rise in profit to $4.8 billion at its half-yearly profit result. Its share price rose 1.8 per cent to $74.20. 

Other banks pummeled

But the rest of the big four were pummeled. They do not report their interim results until April. National Australia Bank fell 1.9 per cent to $24.42, Westpac Banking Corporation lost 0.6 per cent to $28.53 and ANZ Banking Group ended 1.6 per cent lower to $22.42, continuing Tuesday's rout.

The financial sub index is now down 13.7 per cent year-to-date, caught up in global recession fears and the impact that negative interest rates in Europe and Japan have on banks' bottom lines.

"As the banks go, so does the market," Australian Stock Report head of research Chris Conway said, noting the banks accounted for 40 per cent of the index by weighting. "When is this going to stop, that's the million dollar question."

Telstra was the biggest drag on the index, down 3.2 per cent to $5.43 after investors mulled the implications from its major network failure a day earlier.

BHP Billiton fell 2.5 per cent to $15.65, while Rio Tinto shed 1.2 per cent to $41.51.

Among the other blue chips, Wesfarmers dropped 1.7 per cent to $42.12 and Woolworths fell 3.2 per cent to $22.35. 

'Fear of fear itself'

Citi analyst Toby Levkovich said the awful sentiment gripping global markets appeared to be "fear of fear itself".

But rather than a 2008-style crisis, sharemarkets were in a correction of the type seen in 2011, he said.

"With most data not implying an imminent US recession, including the latest small business hiring intentions and rising open job listings, the comparisons to 2011-12 seem appropriate including sentiment metrics and collapsed stock price," he said.

Japan endured another day of pain while other regional bourses remained closed for the Lunar New Year holiday. The Nikkei index fell as much as 4 per cent during afternoon trade, coming close to a 10 per cent fall in two days.

Traders who work on technical analysis, the study of market charts to identify trends, say the next support level for the market, having fallen below the 4800, is in the low 4600 range.

"That is the point that most traders are looking at and hoping the market finds some support," Mr Conway said.

But 4600 is just a 170 point fall from the market's present levels.

Peak Asset Management executive director Niv Dagan said the capitulation through 4800, combined with weakening oil prices and muted profit results and outlooks leaves risk for further falls.

"Investors are nervous about global growth and the US will likely have to push back their interest rate rise revisions further backwards, and we would be looking for the RBA to cut by 25 basis points next month," he said.

All sectors ended lower, utilities faring the best, down 0.03 per cent. Information technology fell the most, down 4.5 per cent.

The best performing stock for the day was CIMIC group, which climbed 8.9 per cent to $25.47 on a 20 per cent rise in full-year net profit after tax to $520.4 million.

Boral was the day's runner up, rising 3.5 per cent to $5.32 after it reported its first-half profit rose 31 per cent to $137 million.