The benchmark S&P/ASX200 index on Wednesday fell 105.8 points, or 1.2 per cent, to 8,843.6, its worst single-day loss since a 142-point fall on March 19.
The broader All Ordinaries dropped 102.8 points, or 1.12 per cent, to 9,074.3.
Overnight, Mr Trump said in a social media post he was extending the two-week ceasefire that had been about to expire, although negotiators in Tehran said they wouldn't attend talks with the US, calling them a waste of time.
Also in Washington, Mr Trump's pick to chair the US Federal Reserve struck a hawkish stance during his Senate nomination hearing, reducing expectations the Fed would cut rates in 2026.
Kevin Warsh told the Senate Banking Committee that Mr Trump had never asked him to commit to interest rate cuts and fighting inflation would be his top priority.
Seven of the bourse's 11 sectors finished lower and four closed higher.
Health care was by far the biggest mover, falling 6.0 per cent on a huge plunge by Cochlear.
The hearing implant company dropped 40.7 per cent to a decade-low of $99.58 after cutting guidance, in part due to uncertainty and reduced consumer sentiment from the Middle East conflict.
Cochlear said it now expected to make a full-year profit of $290 million to $330 million, down from its original guidance of $435 million to $460 million.
Other health care names fell as well, with CSL retreating 5.7 per cent and Resmed subtracting 2.5 per cent.
In the financial sector, all of the big four banks similarly closed in the red.
CBA dropped 2.5 per cent to $175.04, NAB declined 2.4 per cent to $40.22, ANZ subtracted 2.3 per cent to $36.41 and Westpac lost 2.1 per cent to $39.40.
Also, Bank of Queensland slid 9.0 per cent to a three-month low of $6.61 after the regional lender announced a 20 per cent drop in first-half profit, while Generation Development Group dropped 22.6 per cent to an 18-month low of $3.56 on a quarterly update from the financial services company.
In the heavyweight mining sector, BHP grew 1.2 per cent to $56.17 after the Big Australian said its full-year copper production was now expected to be at the upper half of guidance.
Fortescue edged 0.1 per cent higher at $21.20, Rio Tinto dipped 0.5 per cent to $173.05 and South32 added 2.0 per cent to $4.50.
Goldminers were lower as the yellow metal changed hands at $US4,785 an ounce, down from about $4,800 on Tuesday.
Evolution dropped 2.9 per cent, Newmont fell 1.7 per cent and Northern Star retreated 3.6 per cent.
On the flip side, Treasury Wine Estate soared 16.5 per cent to a two-month high of $4.72 after the Penfolds owner said demand had picked up in China.
Corporate Travel Management, whose shares haven't traded since August, gave an update on its overcharging scandal involving the British government.
The amount involved had ballooned to $241 million and could involve faked documents, the company said.
The Australian dollar was trading for 71.73 US cents, from 71.63 US cents at 5pm on Tuesday.
ON THE ASX:
* The S&P/ASX200 dropped 105.8 points, or 1.18 per cent, to 8,949.4.
* The broader All Ordinaries lost 102.8 points, or 1.12 per cent, to 9,074.3.
One Australian dollar trades for:
* 71.73 US cents, from 71.63 US cents at 5pm AEST on Tuesday.
* 114.17 Japanese yen, from 113.78 Japanese yen.
* 61.04 euro cents, from 60.84 euro cents.
* 53.05 British pence, from 52.98 British pence.
* 121.20 NZ cents, from 121.15 NZ cents
