The sharemarket fell sharply yesterday as iron ore prices declined and strong jobs news cooled hopes of interest rate cuts.
Employment jumped by 71,500 places last month, the Australian Bureau of Statistics said. Economists had expected a rise of 10,000. Spot iron ore fell 3.1 per cent to $US139 a tonne.
The benchmark S&P/ASX 200 closed down 1.2 per cent at a seven-day low of 5032.2, having hit a 4 1/2-year high of 5163.5 on Tuesday.
The market has risen 30 per cent since June last year, but yesterday marked its third consecutive fall. Turnover was $5.5 billion, in line with the 20-day moving average.
BBY institutional dealer Anson Rosewall said the S&P/ASX 200 was likely to fall towards its February 22 low of 4975.9 after breaking a critical uptrend line around 5080 yesterday.
BHP Billiton, Rio Tinto and Fortescue Metals fell 2.3-6.2 per cent on iron ore prices.
"China's economy is probably going to weaken and their economic growth is less steel-intensive than it has been . . . and eventually it will fall even further," Perpetual's head of investment market research, Matthew Sherwood, said.
Initial optimism about the local economic outlook was replaced by concern that the Reserve Bank might move to a tightening bias.
The dollar jumped 0.7 per cent after the jobs data, adding to pressure on resources stocks. Fund managers said banks looked expensive after hitting multi-year highs this week.
"There is a growing perception that Australian banks are fully valued and, after riding the yield train for nine months, investors may be forming the view that there is better value elsewhere," Perpetual's Mr Sherwood said.
Others said fund managers might need to sell some bank shares to diversify portfolios.
"Fund managers are a bit worried that the banks are making up such large components of their portfolios at the moment, so that's where short-term selling will likely come from," BBY's Mr Rosewall said. "I think the pullback won't be too bad in the major banks, though, as falling credit spreads and lower funding costs will net an ongoing improvement in lending margins."
The major banks were mixed, with National Australia Bank 26c lower at $30.69, ANZ down 30c at $28.18, Commonwealth Bank off 50c to $68.88 and Westpac down 37c at $30.13.
Department store chain Myer jumped 5.9 per cent after first-half profit rose slightly as it increased margins by easing off on discounts, selling more in-house brands and backing away from the competitive electronics and white goods sectors.
Ramsay Health Care gained 2.7 per cent as it confirmed negotiations with Sime Darby about a possible transaction, after The Wall Street Journal reported that the pair were in talks over a Southeast Asian joint venture.
Freight rail operator Aurizon gained 3c to $4 after it won a coal haulage contract in Queensland with mining giant Xstrata.
