Nervy investors found some solace from the global sell-off following Ben Bernanke's taper talk, with the market staging a modest comeback from steep early falls after China’s benchmark money-market rate retreated from a record high, sparking optimism a potential credit crunch could be avoided.
Resources stocks pared sharp early losses as talk spread that China's central bank injected 50 billion yuan to the financial system on Thursday in an attempt to stabilise the financial system and has put the heat on key state-run lenders to stop hoarding cash to alleviate a worsening liquidity squeeze.
The local benchmark tumbled more than 1% in early trade on carnage in global markets overnight after the US Federal Reserve unveiled a more hawkish roadmap for tapering of quantatative easing than expected.
At the 1615 AEST official market close, the benchmark S&P/ASX200 index shed 0.41% to 4,738.8 points, while the broader All Ordinaries index declined 0.42% to 4,723.8 points.
The benchmark dropped to an intra-day low of 4683.3 points earlier in the session.
IG market analyst Stan Shamu said China's inter-bank rates remained a concern, which was dampening sentiment in the region.
AMP Capital chief economist Shane Oliver said the sharp spike in China's interbank lending rates since late last month had added to growth fears for the world's second largest economy.
Local investors would start sniffing out bargains as the market tracked towards breakeven for the year, Mr Shamu said.
"There is still significant downside risk particularly on the China front," he said.
"Should the US dollar maintain its upward trajectory, there will also be a burden on commodities."
CMC Markets senior trader Tim Waterer said buyers were in the minority today given the risk-averse leads from offshore.
Routs across global markets after the Federal Reserve's taper talk showed how addicted markets were to stimulus measures, Mr Waterer said.
"When you take a step back and see that the recent spate of selling is in reaction to an improving US economy, things are likely nowhere near as dire as the daily falls suggest," he said.
"It’s just that traders are still trying to contemplate a world without quantatative easing as it has been so long since the global economy has been left to stand unsupported by extreme central bank measures."