The Australian share market has clawed back some lost ground after an early plunge saw more than $100 billion wiped off the value of local stocks in just two days.

ASX at the close: ASX 200 index closed down 1.6pc at 6,867, after initially dropping about 2.5pc

ASX 200 index closed down 1.6pc at 6,867, after initially dropping about 2.5pc Some companies that were hard hit in early trade rallied to finish the day significantly higher

Some companies that were hard hit in early trade rallied to finish the day significantly higher Australian listed companies had lost more than $100 billion in value over the past two days, before the falls eased

The rebound came after Wall Street's Dow Jones index posted its worst session in two years overnight, falling by more than 3.5 per cent.

Australian stocks initially doubled down on a steep fall yesterday, when they shed more than $50 billion in value.

In early trade, the ASX 200 was posting an even bigger decline of about 2.5 per cent.

However, the market stabilised in mid-morning trade as bargain hunters looked to pick up battered stocks.

Some stocks that were on the list of top 10 losers in the first hour of trade appeared amongst the top 10 gainers by the end of the day — Appen (up 6.5 per cent), Polynovo (up 4.9 per cent) and Nearmap (up 3.3 per cent) were amongst those.

By the close of trade, the ASX 200 index was down 1.6 per cent at 6,867.

The rally looks set to continue overnight, with US share futures up quite strongly.

'Well-worn playbook may have just stopped working'

However, large investors continued to remain cautious about buying into the recent falls.

"Whilst we feel that this could represent a buying opportunity, especially in Asia and emerging markets, investors would do well to recognise that this recent weakness may have a way to run, given that it could be a sign that a well-worn playbook may have only just stopped working," cautioned Paras Anand, the chief investment officer for the Asia-Pacific at global investment giant Fidelity.

OANDA's senior market analysis Asia-Pacific Jeffrey Halley was even less optimistic.

"If you have faith in the health authorities of Iran and Italy and Afghanistan to control their cases of coronavirus, then by all means go bargain hunting," he wrote in a note.

"What is becoming clearer by the hour, is the disruption from coronavirus to business globally, in the form of supply chain bottlenecks and falling sales.

"Against that backdrop, any short-term rallies in asset markets are likely to be just that, short."

As trade settled down, the biggest losers remained companies exposed to travel and tourism, such as Webjet (down 6.5 per cent), Flight Centre (off 3.5 per cent) and Qantas (down 2 per cent).

Market 'reality check' on coronavirus

ANZ's economics team has analysed the bank's internal data to calculate that spending at Australia's major international airports dropped 27 per cent between mid-January and early-February.

"Airport spending dropped steeply in February, reflecting coronavirus-related travel bans and lower appetite for international travel," wrote ANZ economists Adelaide Timbrell and David Plank.

"Travel bans from China began on the 27 January. The data suggest travel between Australia and China started falling before the ban."

The economists noted that Chinese tourists account for more than a quarter of international tourism spend in Australia.

Retailers were also being sold off as investors worry about both consumer demand and the worsening disruption to supply chains from the coronavirus — JB Hi-Fi was off 2.2 per cent and Harvey Norman was down 2.4 per cent.

"I think there was a bit of a reality check yesterday and over the weekend for markets when it became clear that the coronavirus had spread outside China," Fiona Clark from Merricks Capital told ABC News.

"The fact that this is real, this is having an impact on earnings, we're seeing companies reporting and talking about a real impact on earnings. Even companies that aren't reporting, we're seeing evidence of supply issues."

'Buyer strike' or 'not a big deal'?

However, falls were broad-based, with only five companies out of the top 200 trading higher early in the session and blue chips also struggling.

The major Australian miners — BHP and Rio Tinto — were down 2.1 and 1.7 per cent respectively, while the major banks had lost between 0.9 and 1.7 per cent.

"Well, this escalated quickly," Pepperstone's head of research Chris Weston wrote in a note this morning.

"But the markets have come alive with the sound of volatility and traders reaching out for portfolio hedges.

"It takes a brave soul to be buying these markets, but the opening 30 minutes will be key to psychology — it could well be a buyer strike and another day where order book dynamics take hold and the sellers exasperate the move."

However, the recovery in stocks indicated that there are some "brave souls" out there.

"If you look at a longer-term chart, this is a blip. It's not even a blip for some companies," Ms Clark said.

"It's not a big deal in absolute price movements because of the rises that we had seen.

"It's basically erased the gains we've seen from January in terms of the US market, and I think that is not necessarily unexpected: the view was that markets had become overvalued, that pricing was expensive and this is a correction."

The Australian dollar has remained resilient at 66.09 US cents, even as safe haven currencies such as the Japanese yen rallied.