Mixed comments from US Federal Reserve officials about the fate of its massive stimulus program have sent investors into a whirlpool of confusion, muting equity markets across the globe.
Last week's rally, which sent Wall Street to record highs following the Fed's decision to delay any tapering, appears to have dissipated, with sharemarkets progressively sliding into the red.
Australia's benchmark S&P/ASX 200 Index finished 18.3 points, or 0.3 per cent, weaker at 5234.2 on Tuesday, while the broader All Ordinaries eased 16.3 points, or 0.3 per cent, to 5229.5. The losses followed a broad-based sell-off in the US, with the S&P 500 shedding 0.5 per cent.
St George Bank economist Janu Chan said Fed officials publicly debating about when to wind back its $US85 million ($90 million) a month asset buying program pushed investors to the sidelines.
On Monday night, Dallas Fed president Richard Fisher said the decision to refrain from tapering had hurt the central bank's credibility, and he had argued against his colleagues from keeping the stimulus at full steam. This differed from New York Fed president Bill Dudley, who said the asset buying (mainly Treasury securities and mortgage bonds) needed to remain intact because the US labour market remained weak.
"Uncertainty about when the Fed would start winding back its stimulus program weighed on investors," Ms Chan said, adding that investors were also unsettled about the US debt ceiling negotiations, which Congress must finalise next month.
The top four banks were trading weaker, with the biggest company on the ASX, Commonwealth Bank, and ANZ both finishing weaker at $72.90 and $30.99 respectively.
The big miners were also down. Index heavyweights BHP Billiton and Rio Tinto lost 0.6 per cent to $35.87 and 0.8 per cent to $62.10 respectively, after copper prices fell for the second consecutive session.
CMC Markets sales trader William Leys said strong data from China, our biggest trading partner, had cushioned the ASX. The HSBC/Markit flash purchasing managers index (PMI) for China rose to 51.2 in September, from 50.1 last month.
Still, Mr Leys said the US was fuelling uncertainty, which was the market's worst enemy. "Political wrangling over the US government's debt ceiling is adding to the general unease," he said. "Overall, the current economic climate is uncertain in the short term, and with US markets near record highs, it's not one conducive to buying.
"The good news out of China is also providing plenty of support for the Aussie dollar today. While the risk-off sentiment has the local unit trading lower against the USD, it would likely be significantly worse had yesterday's Chinese PMI read missed the mark."
The Aussie had eased 0.4 per cent at US94.18¢ late on Tuesday.