Australian shares fell sharply on Thursday as global bond market jitters spilled into the local market.

The benchmark ASX 200 dropped 66.8 points, or 0.77 percent, to close at 8660.9. Banks and miners led the decline as investors rotated away from risk.

Rising global bond yields have been the dominant theme. Higher yields raise borrowing costs and make equities look expensive by comparison, pressuring markets from Sydney to New York.

Fortescue added to the gloom with a weak operational update that weighed on the materials sector. Iron ore miners are sensitive to both Chinese demand signals and the strong US dollar.

The banks, which carry heavy weight in the index, fell as traders priced in the prospect of rates staying higher for longer, which can squeeze lending growth.

Analysts say the local market will take its cue from US inflation data and the Reserve Bank’s next move. With the cash rate at 4.6 percent, investors are braced for more tightening.