The Australian market slumped almost 1% in afternoon trade following a third day of losses on Wall Street.
The big banks led the market lower before recovering some lost ground shortly before the market closed.
Westpac closed down 0.95% to $32.46, the Commonwealth Bank down 1.23% to $76.35, the ANZ down 0.82% to $31.38 and the NAB down 1.4% to $33.04.
Ric Spooner, chief market analyst at CMC Markets, says the US bombing of Islamic State forces has been expected but it comes at a time when markets have largely removed geopolitical risk premium from valuations.
“The commencement of bombing operations and the potential for retaliation and escalation of the conflict in Iraq and Syria may see a note of caution return to international markets for a while,” he says.
Wall Street fell overnight with the the Dow Jones Industrial Average down 0.68% to 17,055.87 points.
In Australia, the S&P/ASX 200 closed down 45.03 points or 0.83% to 5,370.70 points.