The Federal Reserve's first major economic update since COVID-19 forced investors to reappraise expectations for a V-shaped recovery in growth and earnings, prompting a bloodbath in the Australian stock market and a flight to the relative safety of bonds.

Australian stocks crumbled on Thursday, with the ASX dropping 3.1 per cent to end the day at 5960.60 in an abrupt reversal of a 30 per cent-plus rally that carried the index through 6000 earlier in the week.