Investors' relief on the French and German plan to rescue Greece last week has rapidly evaporated and worsened overnight as Greek Prime Minister George Papandreou called a referendum on the plan, putting his government at risk of collapse.
"What it means is you have to be cautious about saying we're out of the woods," said Andrew Pease, strategist at Russell Investment Group.
We're still confident that the euro will survive and that the crisis will be resolved eventually, but we're not confident at all that we've seen the end of the volatility," he said.
The benchmark S&P/ASX 200 was recently down 68.4 points at 4164.5, adding to a 2.8 per cent slide over the past two days.
Australia's big banks were worst hit, with all four down between 1.9 per cent and 2.8 per cent.
Westpac was in focus after warning that it would target cost-cutting in a generally weak market, despite reporting a 7 per cent rise in second-half profit, in line with market forecasts.
Steel maker OneSteel , which also produces iron ore, plunged 17 per cent to an 11-year low, after warning its first-half profit would dive around 50 per cent due to the recent slump in iron ore prices.
"It's a fairly significant downgrade," said George Clapham, adding that it was 60-65 per cent below forecasts.
He said he would have expected the group's shares to fall even more, given how steep the downgrade was, but said the share price may have been supported by commodity analysts' view that iron ore prices have troughed.
Bigger rival BlueScope Steel slid 5.4 per cent on worries about continuing soft demand for steel.
Top miner BHP Billiton fell 1.2 per cent, while Rio Tinto fell 2.1 per cent. On rival platform Chi-X, BHP fell 1.4 per cent.
Top retailer Woolworths held up better than the market, easing 0.2 per cent, after its new chief flagged the group may sell its electronics chain Dick Smith, which has underperformed rival JB Hi-Fi for some time.
Gold miners were among the few gainers, with St Barbara Mines up 3.2 per cent and top gold miner Newcrest Mining up 1.7 per cent with gold prices jumping 1 per cent on euro zone worries.
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