The benchmark S&P/ASX 200 closed down 0.2 per cent at 5109.2 after hitting a 4 1/2-year high of 5135.7 in early trading.
Share trading value worth $5.2 billion slipped just below the 20-day moving average of $5.3bn.
Asian markets were mostly lower ahead of economic data from China and the US, although a weaker yen helped Japanese stocks to a new high for the year.
The US will today announce February non-farm payroll employment figures and China will announce its February trade data, to be followed by inflation and industrial numbers over the weekend.
Traders nevertheless saw scope for further strength in shares on the back of an improving global economy and better earnings expectations in Australia. "The global economic picture continues to improve, particularly in the US, and there's obviously a focus on that," said Martin Lakos, director of the private wealth division at Macquarie.
The market turned down after the Bureau of Statistics said Australia's trade deficit widened to $1.06bn in January, exceeding market expectations of a $500m shortfall. The trade deficit hurt the Australian dollar in the Asia session. At 5pm AEDT it was buying $US1.024, down US0.44c. "We suspect that the gradual improvement in exports in the fourth quarter was temporarily interrupted in January due to some natural statistical pullback and adverse weather events," Citi economists said in a note. "We do not, however, view January's decline as the start of a trade partner based moderation in demand."
Major stocks, including Westpac, ANZ, Telstra and CSL, subsequently fell between 0.8 per cent and 1.2 per cent.
Miners initially led an early advance after the S&P 500 Metals & Mining index rose 3.5 per cent following stronger-than-expected US private sector jobs data.
Also supporting the resources sector, the US Federal Reserve's Beige Book, a survey of American economic conditions, showed the economy expanded and the labour market improved a little in January and February. Despite higher payroll taxes and uncertainty over Washington's spending plans, the Fed said economic activity expanded at a "modest to moderate pace".
BHP Billiton and Rio Tinto closed flat and Fortescue Metals fell 2.2 per cent.
In a positive note for iron-ore miners, Morgan Stanley analysts Joel Crane and Peter Richardson said investors were too bearish on Australian iron-ore equities.
"We think the level the market is willing to pay for iron-ore exposure is far below our expectations," the analysts wrote in a report.
Looking ahead, Mr Lakos said he was bullish on banks. "Industrials have seen some margin expansion, but the banks have seen the biggest earnings upgrades by analysts following their trading updates," he said. "That's going to be a big driver into their earnings reports next month."
