The sharemarket had it biggest fall in five weeks yesterday, with financial, material and industrial stocks leading the decline as global equity markets lost momentum following strong gains last week after the resolution of the US fiscal-cliff impasse.
The benchmark S&P/ASX 200 closed down 0.6 per cent at 4690.2, reversing a 0.4 per cent intra-day gain.
Its biggest one-day fall since December 4 came after a 9 per cent rise in the final seven weeks of 2012, and a 15 per cent rise last year. Share-trading value expanded to $4.5 billion, versus last year's average of $4.1bn.
"Global equity markets went through the roof last week, so we will probably wait for fresh leads before the next leg higher," IG Markets strategist Stan Shamu said. The MSCI world index rose 3.3 per cent last week.
"The Australian market is a bit exhausted after a very strong run," said Macquarie Private Wealth division director Martin Lakos.
"I'd be expecting more shallow dips. We saw a fair amount of P/E (price to earnings ratio) expansion last year and that has to be backed up by some earnings recovery."
Australia's corporate earnings season is due next month.
CommSec market analyst Steve Daghlian said the Australian market defied negative overseas leads in early morning trade before gains were reversed in the afternoon.
"It could have gone either way, but as the day progressed the market went from being slightly higher to around half a per cent lower and there didn't appear to be one particular driver," Mr Daghlian said. "At the end of the day we're doing a bit of profit-taking."
BHP Billiton, Rio Tinto and Fortescue Metals all fell between 0.8 per cent and 3.1 per cent as investors grew sceptical about the sustainability of iron ore prices, which rose 0.4 per cent to a 15-month high of $US154.90 on Monday.
Supply issues in India and Brazil, falling stockpiles in China and signs of economic stabilisation in the Chinese economy have pushed iron ore prices up about 80 per cent since September.
Commonwealth Bank shares tumbled 2 per cent after UBS analyst Jonathan Mott downgraded the stock to sell from neutral, citing "stretched" valuation metrics and "limited" growth potential.
Macquarie Group slipped 1.1 per cent after Bank of America Merrill Lynch downgraded the investment bank to neutral, from buy. Stockland, a global property developer, fell 2.3 per cent after the same broker cut its rating to neutral, from buy.
But analysts were on the whole positive about the Australian sharemarket.
"The bigger picture is that we've got a clear medium-term uptrend and, if we break through the recent highs, I would suggest we're moving into a long-term uptrend," CMC Markets chief strategist Michael McCarthy said.
"Overall, although some investors might be disappointed, a bit of consolidation is good for the health of the market."
The Australian Industry Group and the Housing Industry Association also released a report showing construction activity slowed for the 31st consecutive month.
