Australian shares have recorded heavy falls, following a spike in Sydney's coronavirus numbers and an overseas sell-off on renewed concerns about the the world's economic recovery. 

The ASX 200 closed 0.9 per cent lower at 7,273 points.

At its worst point, the benchmark index dropped 1.6 per cent, before recovering some of those losses in the afternoon.  

Almost eight out of every 10 stocks were in the red, with Zip Co (-5.5pc), CSR (-6.6pc), Afterpay (-5pc), Webjet (-5.7pc) and Flight Centre (-3.9pc) being some of the worst performers.

Energy stocks like Viva Energy (+5.1pc), Ampol (+1.5pc) and Whitehaven Coal (+1.3pc) went up, along with Lendlease (+1.8pc) and APA Group (+1.5pc).

The Australian dollar fell sharply to 74.17 US cents (down 0.9 per cent).

"There has not been a single catalyst triggering a turn in sentiment," NAB senior foreign exchange strategist Rodrigo Catril wrote in a note.

"Instead it seems that an accumulation of events has culminated in a big U-turn towards cautiousness."

Mr Catril identified some factors like the US Federal Reserve signalling the possibility it might wind back emergency COVID-19 stimulus measures, and investors' expectations that UK, Canada, Australia and New Zealand central banks might hike interest rates sooner than expected.

"Countries with high vaccination rates like the UK remain committed to their reopening strategy, but we don’t know yet if this strategy will work."

Wall Street fell sharply from its previous day's record highs, with the broad S&P 500 index shedding 0.9 per cent (to 4,321 points).

The Dow Jones Industrial Average lost 0.8 per cent (34,422), and the tech-heavy Nasdaq Composite dropped 0.7 per cent (to 14,560).

European markets performed even worse, including Britian's FTSE (-1.7pc), Germany's DAX (-1.7pc), and France's CAC (-2pc).

"This is a normal pull-back," said Brad McMillan, chief investment officer for Commonwealth Financial Network in Massachusetts.

As risk-averse investors fled the stock market, the burst of pessimism led to hot demand for safe-haven government bonds.

The interest rate, or yield, on US 10-year Treasury bonds fell 4.6 basis points to 1.275 per cent (after earlier hitting a five-month low of 1.25 per cent).

There is an inverse relationship between the price of bonds and how much interest they pay. So you'll earn a lower yield as more people purchase bonds and their price goes up.

This was the eighth day in a row that American long-term bonds dropped.

It was also the longest losing streak since the nine-session drop for US Treasuries that ended on March 3, 2020, as the COVID-19 pandemic in the United States was gaining speed.

Also, the number of US workers lodging applications for unemployment benefits, for their first time, unexpectedly ticked up to 373,000 last week. It was a sign that the US labour market recovery remains choppy.

Spot gold prices slipped to $US1,796.90 an ounce (down 0.4 per cent).

Brent crude oil rebounded to $US74.31 a barrel (up 1.2 per cent).

ABC/Reuters