The sharemarket lost ground for the fourth day as political news from Canberra pushed aside concerns about the Cypriot banking system.
"While the political issues in Cyprus roll on, albeit slightly more constructively, it is down to Australia this time to steal the limelight from a political standpoint," IG Markets' Chris Weston wrote to clients.
"Today was one of the most explosive political plays in recent months and it seems that political risk in Australia has once again skyrocketed."
The benchmark S&P/ASX 200 Index slipped 7.9 points to 4959.4, while the broader All Ordinaries dipped 5.8 points to 4976.8.
Bond futures spent the day trading lower as fears about Cyprus' financial problems eased, RBC Capital Markets senior economist Su-Lin Ong said.
At the close, the June 10-year bond futures contract was trading at 96.405 (implying a yield of 3.595 per cent), down from 96.475 (3.525 per cent) the day before.
The Cypriot parliament's rejection of a move to levy bank deposit holders as part of a European Union-led bailout package has weighed on market sentiment in past days.
But Ms Ong said concerns about fallout from the decision had eased on Wednesday night. "It's a bit of a spillover from last night, there has been nothing else to really give them market direction," she said.
Ms Ong said the federal leadership spill in Canberra had little effect on the bond market.
Following Goldman Sachs' decision on Wednesday to downgrade its forecasts for iron ore prices, the global investment bank on Thursday downgraded its view of iron ore exporter Arrium.
Iron ore has become more important for Arrium, as the high dollar keeps conditions tough for local steel producers. Goldman Sachs downgraded the company - formerly OneSteel - from a buy to neutral. Its shares rose 1¢ to 91.5¢.
In the resources sector, BHP Billiton lost 13¢ to $33.49, but Rio Tinto rose 82¢ to $58.30. Fortescue gained 11¢ to $3.91.
Billabong International fell to a record low before the company asked to be placed in a trading halt.
The stock fell as much as 22 per cent to 63¢, the lowest since its August 2000 sharemarket listing, as it awaited takeover offers from two private equity groups. By the time it was placed in a trading halt, its shares had risen to 69.5¢.