Australian shares lost close to $40 billion in value in their biggest slump since February 2013, as poor profit results from Commonwealth Bank and Woolworths sparked a major bout of selling in the banking and consumer staples sectors and throughout the broader market.

The local market got a poor lead from the US, with the Dow Jones down 0.8 per cent after a surprisingly wide March US trade deficit, and then plummeted after Commonwealth Bank of Australia and Woolworths released their results.

The market stayed in the red for the whole day and closed at the session's lows, with the All Ordinaries finishing 2.1 per cent lower at 5690.9 and the ASX200 2.3 per cent lower to 5692.2 – its first close below 5700 since February.

Commonwealth Bank, which fell nearly 6 per cent, and Woolworths were responsible for more than one-third of the loss on the ASX200. If the other three banks and Wesfarmers are included, the combined declines of all six stocks added up to more than half of the slide in the index.

"It's been a very tough day for Australian investors," said CMC Markets chief market strategist Michael McCarthy. "The weight that we're seeing on the banking sector because of the earnings reports is really having an impact on the market overall. Banks are by far the worst sector and accounting for a very significant part of today's fall.

"That's the overall theme of the market. Earnings aren't meeting expectations and investors are bailing out."

The Commonwealth Bank's March quarter profits came in at about $2.2 billion, unchanged from the same period last year, amid higher expense growth and pressure on its profit margins.

An investment analyst at Watermark Funds Management, Omkar Joshi​, said the earnings were softer than the $2.3 billion expected by the market and the comment that trading income was "strong" suggested slowing in the underlying business.

"The result was soft given it missed expectations and [is] indicative of a potentially tougher environment for the banks," he said.

Commonwealth Bank crashed 5.9 per cent to $82.98, its steepest daily fall since the days of the GFC. From an intraday peak of $96.69 on March 23, CBA shares have plunged more than 14 per cent.

The other banks also finished sharply lower on Wednesday, with ANZ down 2.7 per cent to $33.21, National Australia Bank down 2.7 per cent to $35.20 and Westpac Banking Corp down 3.7 per cent to $33.99.

Australia's biggest retailer Woolworths tumbled 5 per cent to $28.14 after posting a fall in third-quarter sales. The results were dragged down by negligible same-store growth at its food and liquor arm, including subdued sales in April, and poor petrol sales.

Competitor Wesfarmers shed 0.5 per cent to $44.35.

Among other blue-chips, BHP weakened 0.6 per cent to $32.35 and Rio gave up 0.6 per cent to $59.12.

However, iron ore miner Fortescue was one of the few bright spots of the day, surging 4.9 per cent after another rise in the iron ore price, which gained 2 per cent to $US58.70 late on Tuesday.

Internet provider iiNet accepted a new $1.56 billion offer from TPG Telecom as superior after the company raised its bid and included shares as part of its new deal. The total consideration of the deal is $8.80 per share plus a 75¢ special dividend, similar to the value of M2's earlier share-based bid.

However, iiNet shares slipped 2.8 per cent to $9.72 on the deal, while PG Telecom jumped 4.2 per cent to $9.16 and M2 shaved 0.1 per cent to $11.10.

Contractor Transfield Services said it would consider reintroducing dividends as it confirmed its full-year profits guidance, despite warning that "challenging macroeconomic conditions" will continue. "With leverage less than two times, the board is in a position to consider reintroduction of dividends going forward," the company said in a presentation to the Macquarie Australia Conference in Sydney. Transfield lifted 1.3 per cent to $1.58.