Sydney - The steep fall on Wall Street exerted a strong gravitational pull on Australian stocks Tuesday, dragging the market down more than 4 per cent.

Sellers swamped buyers in a market that had already factored in an easing of monetary policy that was made concrete in the afternoon session, when the Reserve Bank of Australia announced a cut of 1 per cent in the prime interest rate.

"Traders had already priced in a cut of 100 basis points and there had even be talk that the RBA would go for 125 basis points," said James Waggett of Bell Potter Securities.

The bank has now pushed down interest rates to a 7-year low of 4.25 per cent.

The ASX 200 gave up 153 points, or 4.1 per cent, to 3,528.

Declines were widespread, with the mining sector particularly hit on fears that global recession will mean collapsing commodity prices.

Giant miners BHP Billiton Ltd and Rio Tinto Ltd both lost 10 per cent of their value. Macquarie Bank Ltd, the country's biggest investment bank, fell 12 per cent.

After dipping on the news of the interest rate cut, the Australian dollar bobbed back above its morning opening to be at 64 US cents at the close. (dpa)