Fears that Israel might soon bomb Iran, and concerns about a slowdown in Chinese growth, were enough to convince investors to pull money from the market, with the local bourse slipping yesterday.
Energy and materials stocks weighed heavily as investors continued to respond to Monday's announcement by Chinese authorities that growth in the country was expected to pull back by 0.5 percentage points this year.
Prices for copper, which is widely viewed as an industrial bellwether, slipped almost 1 per cent amid worries of a slowdown in demand from the world's largest consumer of the red metal.
Mining stocks dropped, with BHP Billiton down 81?, or 2.3 per cent, at $34.58, and Rio Tinto shedding $1.47, or 2.3 per cent, to $63.62.
The materials sub-index - which includes producers of agricultural commodities, fertilisers, paper and forestry products, and chemicals and building materials - had its worst day since December 19, losing 2.3 per cent.
The only sector to avoid losses was the information technology sector, which rose by 1.2 per cent.
"It's seen a change in sentiment," the chief investment officer at Wingate Asset Management, Chad Padowitz, said. "We've definitely seen companies geared to global growth taking somewhat of a hit, like oil and commodity companies."
"Where the market's been very resilient and quite strong over the last couple of months, there is certainly [some] real weakness starting to be shown in commodity companies."
Concerns Israel had run out of patience and could soon start bombing Iranian nuclear sites kept global equity markets weaker.
The benchmark S&P/ASX200 index was down 58.3 points, or 1.37 per cent, at 4204.7 points, while the broader All Ordinaries index shed 58.7 points, or 1.35 per cent, to 4295.5 points.
The dollar lost over US1? after the Reserve Bank kept the cash rate steady, at 4.25 per cent.
Economists correctly predicted the decision this time, unlike last month when most thought the RBA would cut rates by 0.25 basis points.
In his statement accompanying the decision, RBA governor Glenn Stevens said the monetary policy setting was "appropriate". Economists said that despite some of the central bank's more upbeat observations about the European financial system, it appeared to hold a bias towards cutting rates, with much depending on domestic economic conditions.
Attention will now turn to ANZ Bank's independent rate decision this Friday.
The local currency was down against the greenback. At 5pm, the dollar was trading at US$106.27?, down from US$107.08 on Monday.
Currency strategists suspected more was behind the drop than the RBA decision. "It was a bit perplexing," a foreign exchange strategist at ANZ Bank, Andrew Salter, said. "A couple of headlines might have been factors. One was regarding the Iranian conflict ... the other comments from Chinese central bank officials that they had confidence in Europe," he said.
ANZ fell 11? to $22.09, CBA gave up 51?, to $48.58, and NAB shed 5?, to $23.48.