Australian stocks have recovered after losing more than three per cent shortly after opening, following the global plunge in stocks overnight.

At 10.12am (AEDT), the ASX 200 was down 148.5 points to 4,3919.9 - or 3.27 per cent.

 But at 13.50 per ASX 200 was down only 35.2 points, at 4505.2.

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At 1200 AEDT, the benchmark S&P/ASX200 was down 94.4 points, or 2.08 per cent, at 4446, while the broader All Ordinaries had lost 109 points, or 2.4 per cent, to 4435.7.

The December share price index futures contract had fallen 86 points at 4480, on a volume of 20,830 contracts.

"We are following the New York trend today but we need to be careful: our banks need to be seen to be strong," Bell Potter Brisbane senior adviser Stuart Smith said.

CBA begins BankWest negotiations

Commonwealth Bank of Australia Ltd says it has begun exclusive negotiations with HBOS plc to buy BankWest.

"Whilst discussions are continuing, the parties have not reached agreement," CBA said in a statement today.

At Midday its shares were down 62 cents, or 1.41 per cent, to $43.38.

ANZ Banking Group dropped 22 cents, or 1.22 per cent, to $17.83 and National Australia Bank fell 53 cents, or 2.07 per cent, to $25.02.

Westpac shed 35 cents, or 1.56 per cent, to $22.15 and its takeover target St George Bank was off by 49 cents, or 1.67 per cent, to $28.81.

Among the miners, BHP Billiton lost 29 cents, or 0.97 per cent, to $29.50, while takeover target Rio Tinto declined $1.49, or 1.76 per cent, to $82.99.

In the US overnight, the Dow Jones Industrial Average was down 369.88 points, or 3.58 per cent, at 9,955.5.

The Nasdaq composite skidded 84.43 points, or 4.34 per cent, to 1,862.96 and the Standard & Poor's 500 index lost 42.34 points, or 3.85 per cent, to 1,056.89.