The benchmark S&P/ASX 200 slipped 100.8 points to close at 4,332.8 following falls on Wall Street overnight. The broader All Ordinaries index shed 2.26 percent to end trade at 4,408.3.

David Land, head of analysis at CMC Markets, said it was not just the situation in the United States, which has resolved its debt impasse, but the broader issue of debt that had markets' attention.

Despite the United States agreeing a deal to avoid a default, global markets have been hurt by renewed fears that the sovereign debt crisis in the eurozone could spread to other economies such as Spain or Italy.

"It's not only the US, they've put to bed one issue, but I think it's really highlighted to the market also just also how delicately poised the US is in terms of its debt situation and how vast the situation actually is at the moment," he told AFP.

"It goes to show that there is still a large amount of concern about the state of play in terms of debt serviceability.

"I think it really underlines to the market there are some quite serious systemic issues still out there right around the globe."

Copyright AFP (Agence France-Presse), 2011