The benchmark S&P/ASX200 index on Friday fell 101.2 points, or 1.24 per cent, 8,067, its lowest close since September 11.
The broader All Ordinaries fell 97.9 points, or 1.16 per cent, to 8,317.1.
The ASX200 fell 2.76 per cent for the week, its worst performance since a 2.84 per cent decline in mid-April.
IG market analyst Tony Sycamore said markets had not been prepared for the Federal Reserve's more hawkish statements on Thursday.
The world's most powerful central bank cut US interest rates as expected, but forecast it would do so just twice more in 2025 - half the number of cuts it had previously predicted.
Mr Sycamore said that had been the catalyst to flush out some of the more speculative excesses that had flowed into risk assets, including stocks and bitcoin, following the US election.
But Mr Sycamore was optimistic the carnage had merely postponed a Santa rally, not cancelled it.
AMP chief economist Shane Oliver also blamed the sell-off on the Fed's hawkishness, but added that noise around a potential government shutdown in the US probably had not helped things.
"This came at a time when shares were already vulnerable after a surge to record highs left them overvalued, a bit over loved and technically overbought," Dr Oliver said.
AMP still felt that the overall trend was up, including for Australian equities, he said.
Eight of the ASX's 11 sectors finished lower on Friday, with energy, utilities and tech higher.
Consumer discretionary shares were collectively the biggest mover, dropping 2.5 per cent as Wesfarmers fell 5.0 per cent to a more than one-month low of $69.56.
Investors may have been concerned about the Perth-based conglomerate's announcement on Friday that it would sell its Coregas industrial gas manufacturer to a Japanese firm for $770 million.
The big four banks were down significantly for a second day, with CBA falling 3.7 per cent to $150.26, NAB dipping 2.2 per cent to $36.37, ANZ dropping 2.3 per cent to $27.94 and Westpac retreating 1.2 per cent to $31.67.
In the heavyweight mining sector, BHP fell 0.2 per cent to $39.59 and Rio Tinto slipped 0.6 per cent to $116.74 while Fortescue 2.0 per cent to $18.20.
The Australian dollar was buying 62.25US cents, from 62.31 US cents at Thursday's ASX close.
ON THE ASX:
* The benchmark S&P/ASX200 index on Friday dropped 101.2 points, or 1.2 per cent, at 8,067
* The broader All Ordinaries fell 98.3 points, or 1.17 per cent, to 8,316.7
CURRENCY SNAPSHOT:
One Australian dollar buys:
* 62.25 US cents, from 62.20 US cents at Thursday's ASX close
* 97.69 Japanese yen, from 96.63 Japanese yen
* 60.06 euro cents, from 59.93 euro cents
* 49.85 British pence, from 49.42 pence
* 110.66 NZ cents, from 110.57 NZ cents
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