Australian share prices plunged 3.37 percent in its largest one-day loss for six months today after National Australia Bank revealed fresh losses linked to the global credit crunch, dealers said.

The benchmark S&P/ASX200 index finished down 173.6 points at 4,970.5, while the broader All Ordinaries shed 157.4 points or 3.03 percent to 5,031.

Dealers said the bad news from NAB came after a negative lead from Wall Street, wiping out many of the gains recorded earlier in the week.

"What we're seeing now is a sharp reminder that the recent rally was perhaps more short covering than a sign the United States economy has turned a corner," CMC Markets corporate dealer Andrew Knight said.

"The markets remain very sensitive to any bad news as we saw today with NAB. Even the resource sector has been unable to lend a hand as base metal prices were sold quite heavily in London overnight."

Market volume was 1.4 billion shares worth 7.98 billion dollars (7.74 billion US), with 357 stocks up, 722 down and 304 unchanged.

NAB closes 13.5 percent down

NAB was the hardest hit, closing down 13.5 percent or 4.14 dollars at 25.56 after announcing an additional 830 million dollars in losses from exposure to the US mortgage market.

CMC Markets senior dealer James Foulsham said the announcement spooked the market, sparking fears the worst was yet to come for the bank.

"The NAB news coupled with the fact that the US market was off nearly 300points has absolutely smashed the local market," Foulsham said.

"We've seen a lot of mixed selling of NAB. We've seen people selling out of longs because they are concerned NAB might have a skeleton in the closet."

Elsewhere in the banking sector, Commonwealth Bank was down 3.14 dollars or
6.77 percent to 43.25, ANZ shed 1.70 or 8.74 percent to 17.75 and Westpac fell 71 cents or 3.11 percent to 22.09.

In resources, BHP Billiton fell 63 cents to 36.92 and rival Rio Tinto wasdown 1.40 dollars at 113.80.