Further sharp falls on Wall Street and gathering gloom about the state of European banks battered investor confidence less than a day after the RBA's shock move had lured back buyers.

In early trade, the benchmark S&P/ASX 200 index had fallen as much as 3.9pc, or 178.4 points, to 4440.3, easily eclipsing the 78 point, or 1.7pc, revival yesterday.

"People are just throwing up their arms in despair," said Alex Moffatt, director at Joseph Palmer & Sons.

"We're seeing pretty close to capitulation selling."

The sell off is being exacerbated by "program selling, which is totally unemotional", said Mr Moffatt, who expects banks to lose 4-5pc and resources stocks to give up.

ANZ Bank fell as much as 4.7pc, or $0.85, to $17.30, while National Australia Bank matched that drop, losing as much as $1.22 to $24.78.

Westpac sank as much as 5.4pc to $1.25, to $22.02.

The Commonwealth Bank is in a trading halt after announcing it would pay $2.1 billion for BankWest.

St George Bank was down as much as 3.2pc, or $1.26, to $29.10 and Suncorp-Metway was down as much as 6.8pc, or 75 cents, to $10.25.

Macquarie Group shares lost as much as 6.5pc, or $2.35, to $33.45. Babcock & Brown shares were down as much as 17.2pc, or 22.5 cents, to $1.08.

BHP Billiton fell as much as 5.9pc, or $1.87, to $29.83, while its takeover target, Rio Tinto, dropped as much as 6.3pc, $5.49, to $82.28.

The Australian dollar gave up most of yesterday's rebound, to trade recently at US70.80 cents.

Overnight, the global banking crisis continued to deepen, he said, with British banks seeking a government bailout.

"Rumours are also swirling around Deutsche Bank as well," Rick Klusman of Aequs Securities said.

"The flow of capital has just dried up all around the world, no bank trusts any other bank any more."