Investors retreated in the wake of disappointing Chinese trade balance numbers pointed to sluggish foreign demand and triggered more growth concerns, with the local stock market paring intra-day gains of more than 1.3% to close slightly higher.
At the 1615 AEST official market close, the benchmark S&P/ASX200 index rose 0.4% higher to 4,901.4 points, while the broader All Ordinaries index also added 0.39% to 4,885.4 points.
Before the release of the Chinese trade surplus at midday, the market rose more than 1.3% to an intra-day high of 4950.8 points.
IG market analyst Stan Shamu said China's sharp drop in exports and imports caught investors off guard and drew further attention to the country's growth rate.
"China’s data put a dampener on what had been a fairly positive start after a good lead from US trade," he said.
"The materials have been mainly responsible for the pullback as the reality of a China slowdown bites some of these miners."
China's headline trade balance for June was $27.12 billion, falling short of expectations of about $27.8 billion.
CMC Markets senior trader Tim Waterer said traders were "given a reminder of the perils still facing global growth courtesy of the soft Chinese data".
"It was ‘all systems go’ on the Australian sharemarket prior to the Chinese trade numbers with our market eyeing another day of exceptional gains," Mr Waterer said.
Investors were also mindful of the release of US Federal Reserve minutes on Wednesday night, Australian time.
"With financial markets remaining fixated on the fate of QE, traders will be acutely tuned to both the Fed minutes as well as a speech by (Ben) Bernanke," he said
"Any additional perceived hawkishness will likely have traders pricing in September as being ‘taper time’ in the eyes of the Fed."