The sharemarket fell after early gains on the back of strong US jobs data evaporated and investors took profits in the big four banks and Telstra.
The benchmark S&P/ASX 200 index lost 13.6 points, or 0.3 per cent, to 5387.1, while the broader All Ordinaries index also fell 13.6 points, or 0.3 per cent, to 5380.8.
"Despite a strong lead from the United States, Australian equities were more rational," Clime Asset Management chief investment officer John Abernethy said.
"The US market seems to be magnifying good news. The US non-farm payrolls data released over the weekend was better than expected but it still wasn't very strong, especially considering the horrendous expense of running massive trade and fiscal deficits, zero interest rates, $US85 billion worth of monthly asset purchases and the underwriting of the banking system all to stimulate growth."
While aggressive tapering of US stimulus would be negative for Australian equities, Mr Abernethy said it was unlikely that would happen, with the bigger risk being that the Federal Reserve will continue to delay a reduction in stimulus.
"They should have started that already, and should begin next month. Rumours every day about when the taper will start is causing volatility on markets," he said.
The better than expected US jobs data sparked speculation that the Federal Reserve might begin reducing the $US85 billion in monthly asset purchases it is making to stimulate economic growth before the end of 2013, which boosted the greenback.
At the local close, the dollar was buying US93.82¢ from US94.64¢ at Friday's close.
"A sell-down in the Aussie dollar may have prompted some selling by offshore investors in the banks and Telstra," Patersons Securities head of strategy Tony Farnham said.
The biggest laggard was ANZ, down 1.7 per cent to $32.14, followed by Commonwealth Bank of Australia, which lost 1 per cent at $78.35. National Australia Bank fell 0.6 per cent to $34.56, while Westpac finished down 0.2 per cent at $33.12. Telecommunications performed worst, down 0.8 per cent, as Telstra fell 0.8 per cent to $5.14.
Wesfarmers, owner of Coles, will temporarily trade under two tickers as it completes a capital distribution. Rival Woolworths lost 0.6 per cent to $34.54.
Myer rose 3.9 per cent to $2.68. It will publish its first-quarter sales results on Wednesday. David Jones added 0.3 per cent to $3.02.
"Myer and DJs' monthly sales results don't really matter. Customers can get better deals and choice online and neither of the department stores have a viable long term strategy," Mr Abernethy said.
BHP Billiton dropped 0.1 per cent to $37.91.