The benchmark S&P/ASX200 index on Thursday lost 63.3 points, or 0.72 per cent, to a week-and-a-half low of 8,702, while the broader All Ordinaries fell 59.2 points, or 0.66 per cent, to 8,897.
US Treasury yields overnight hit their highest level since 2007, as investors continued to demand a higher return for buying government debt.
Bond yields have been moving rapidly higher in recent weeks, which has been having broad impacts on share markets and government budgets.
A defiant speech from Iranian officials at the UN General Assembly also served to push up the price of Brent crude, said Pepperstone head of research Chris Weston.
Brent was changing hands at $US103 a barrel after falling below $US99 earlier in the week.
Domestically, the Australian Bureau of Statistics released figures showing employment rebounded in August, which Betashares chief economist David Bassanese said was the final nail in the coffin for the Reserve Bank to raise interest rates next week.
Six of the ASX's 11 sectors finished higher and five closed lower.
Property was the biggest mover, dropping 2.0 per cent as Goodman Group fell 2.1 per cent, Stockland retreated 2.4 per cent and Charter Hall subtracted 3.5 per cent.
The materials sector was down 1.5 per cent, giving up most of Wednesday's gains.
BHP fell 1.7 per cent to $61.02, Rio Tinto dropped 0.7 per cent to $166.46 and Fortescue slid 0.6 per cent to $16.75.
Goldminers were down as well, as the yellow metal changed hands at $US4,312 an ounce.
Northern Star retreated 2.3 per cent, Evolution slipped 1.7 per cent and Regis dropped 2.9 per cent.
In the heavyweight financial sector, all of the big four banks finished in the red.
Westpac lost 1.8 per cent to $34.13, ANZ dropped 1.1 per cent to $37.43, NAB fell 1.3 per cent to $38.15 and CBA retreated 0.7 per cent to $149.98.
Buy now, pay later company Zip Co was the worst performer in the ASX200, falling 11.4 per cent to a five-month low of $1.9850.
Premier Investments was the best performer, climbing 7.1 per cent to a one-month high of $11.95 after its Peter Alexander sleepwear chain posted record sales for 2025/26.
Washington H. Soul Pattinson climbed 6.2 per cent to an all-time high of $48.33 after the diversified financial house announced a dividend nearly seven per cent higher than last year.
In industrials, Amaero plunged 34.5 per cent to 18 cents after the US metals powder manufacturer postponed its US initial public offering, citing adverse market conditions.
Since the start of the year to Thursday's close, the ASX200 is down 12.3 points, or 0.14 per cent.
Thursday's losses are about the 10th time in 2026 that the index has given up its gains for the year.
In currencies, the Australian dollar was changing hands for 70.35 US cents, from 70.98 US cents at 5pm on Wednesday.
ON THE ASX:
* The S&P/ASX200 dropped 63.3 points, or 0.72 per cent, to 8,702.
* The broader All Ordinaries fell 59.2 points, or 0.66 per cent, to 8,897.
One Australian dollar trades for:
* 70.35 US cents, from 70.98 US cents at 5pm AEST on Wednesday
* 111.45 Japanese yen, from 111.88 Japanese yen
* 61.78 euro cents, from 62.11 euro cents
* 53.12 British pence, from 53.28 pence
* 123.97 NZ cents, from 124.31 NZ cents
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