Shares were punished yesterday as investors worried about resources stocks being hit by global economic concerns, and the dollar was also sharply lower on the increased likelihood of an imminent cut in the official cash rate.
The benchmark S&P/ASX 200 index closed down 36.22 points at 5129.66.
Signs that a nascent recovery in the housing sector stumbled in March pushed the dollar to its lowest level since the middle of last month.
The number of house building permits fell 5.5 per cent in March, the most since July last year, curbing optimism that the sector was gaining strength after years of malaise.
At 5pm AEST, the dollar was buying $US1.0236 in Asian trading, down US1.18c.
"We have been expecting another rate cut by the Reserve Bank of Australia but have been agnostic as to whether this could be May or June. We now think the balance of risks has shifted to the bank moving sooner," said Paul Brennan, chief economist at Citigroup.
The RBA's policy-setting board meets on Tuesday, and last night financial markets had priced in a 70 per cent chance of a cut in its cash rate.
The RBA has lowered the rate six times since late 2011 to spur areas of the economy, such as housing construction and consumer spending, ahead of an expected peak in mining investment later this year.
OptionsXpress market analyst Ben Le Brun said the local sharemarket had been pushed lower by weakness in the commodities sector, which was weighing on energy, resources, gold and materials stocks.
"It's sounded like a broken record all week, with those concerns playing out," he said.
He said figures showing a slowdown in factory activity in the US and China for April had hurt investor sentiment.
"It is a sentiment thing, driven by the potential for lower global growth," Mr Le Brun said.
The only stocks in which investors seemed to be interested in the present climate were those that offered good dividend.
Markets were also disappointed by an Institute for Supply Management report that showed manufacturing activity slowed sharply last month.
HSBC's purchasing managers' index showed Chinese manufacturing growth slowed in April as global demand weakened.
On the local market in the resources sector, global miner BHP Billiton dropped 38c to $31.79 and Rio Tinto dumped $1.12 at $53.91.
Among the major banks, ANZ reversed 19c to $31.50, National Australia Bank dropped 11c to $33.84, Westpac retreated 16c to $33.90 and Commonwealth Bank slid 45c to $72.50.
AGL fell 58c to $15.10 as it predicted that net profit this year would be at the lower end of guidance of $590 million to $640m.
Ports and rail operator Asciano lost 14c at $5.23 after it said it would slash spending and cut jobs given falling volumes in some operations.
Flight Centre lifted 3c to $38.20 after it upgraded its full-year profit forecast
