The sharemarket reversed an early rise as resources companies declined on uncertainty about China's growth outlook and Goldman Sachs downgraded the resources sector from overweight to neutral.
High-yield and defensive sectors initially pushed the market higher before mostly turning down, in sync with other markets in the region.
The benchmark S&P/ASX200 closed down 0.6 per cent at an intraday low of 5117.6 points, after hitting a 4 1/2 year high of 5163.5 in early trading.
Value rose to $4.8 billion, but remained below the 20-day moving average of $5.4bn.
Despite further gains on Wall Street overnight, Australian resources stocks suffered after China's retail sales and industrial production data undershot expectations over the weekend, while inflation rose. BHP Billiton, Woodside Petroleum, Rio Tinto, Newcrest, Fortescue Metals and Santos fell 0.4 per cent to 3 per cent.
So called high-yield and defensive stocks, until recently the mainstay of the market, ran into profit taking - ANZ Bank, Westpac, National Australia Bank, Telstra, Woolworths, Wesfarmers, Coca-Cola Amatil and Crown fell 0.3 per cent to 2.2 per cent.
NAB is due to update the market Wednesday, with reports tipping job cuts and other cost cutting initiatives worth $900 million to $1bn over three to five years.
Consumer discretionary sector favourites such as News Corporation, JB Hi-Fi, and Harvey Norman fell 0.6 per cent to 0.8 per cent. News owns The Australian and Dow Jones, which publishes this news wire.
"The market looks a little tired," said RBS Morgans investment adviser Christopher Macdonald.
"Cash has been pouring into high-yield and defensive stocks, but we are just starting to run out of puff in that regard. Normally that would spark a rotation to resources, but we are yet to see what's happening with China."
With China recently introducing curbs on property speculation, and its latest retail sales, industrial production and inflation data disappointing economists, Mr Macdonald said the market was awaiting any policy measures from the National People's Congress, which continues this week.
Goldman Sachs strategists Matthew Ross and Tim Toohey cited uncertainty about China's economic outlook, and doubts about the ability of resources companies to reduce costs, in their decision today to downgrade the Australian resources sector from overweight to neutral.
Nevertheless, Goldman Sachs strategists raised their year-end target for the S&P/ASX200 to 5300 from a previous target of 5000. They upgraded their recommendation on banks from neutral to overweight, while downgrading their view on non-bank financials and healthcare stocks.
RBS Morgans' Mr Macdonald said the benchmark S&P/ASX200 could easily fall a couple of percent in the short term, but he expected it to be well supported above 5000.
"Recent history has shown those dips don't last long, so any sharp down day will reignite that volume drive into blue-chip yield," he said.
