The sharemarket reversed an early rise as mining companies declined on uncertainty about China's growth outlook and Goldman Sachs downgraded the resources sector to 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/ASX 200 closed down 0.6 per cent at an intraday low of 5117.9 points, after hitting a 4 1/2-year high of 5163.5 in early trading.
Turnover rose to $4.8 billion but remained below the 20-day moving average of $5.4bn.
Despite further gains on Wall Street earlier, 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 and Santos all fell between 0.4 per cent and 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 between 0.3 per cent and 2.2 per cent.
NAB is due to update the market today, with reports tipping more job cuts at the bank along with other cost-cutting initiatives worth up to $1bn over three to five years.
Consumer discretionary sector favourites such as News Corporation, JB Hi-Fi and Harvey Norman fell between 0.6 per cent and 0.8 per cent. News Corporation owns Dow Jones Newswires and The Australian.
"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 Beijing 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 yesterday to downgrade the Australian resources sector from overweight to neutral.
Nevertheless, they raised their year-end target for the S&P/ASX 200 to 5300, from a previous target of 5000. They also 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/ASX 200 could easily fall a couple of percentage points 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.
