Investor caution leads to modest drop

The benchmark S&P/ASX200 slipped 14.6 points, or 0.2 per cent, to 4490.7, while the broader All Ordinaries lost 14.7 points, or 0.3 per cent, to 4511.9.

Among the sectors, financials dropped 0.4 per cent, materials lost 0.3 per cent - clawing back some of their earlier losses - while energy and health stocks gained 0.4 per cent and 0.7 per cent, respectively.

Poor leads from overseas did not help the local market, the head of research sales at Deutsche Bank, Glenn Morgan, said.

"There was a little bit of trepidation globally as we head into three key events: first, the US reporting season - we had the first bit of that overnight which is relevant to us, in Alcoa second, when Spain is going to ask for a bailout and third, whether Greece is going to get its next aid instalment," Mr Morgan said.

"Slightly long-term there are the US fiscal cliff issues, which are really on the horizon for us."

Iron ore prices rose above $US117 a tonne overnight, as miner Rio Tinto added 0.2 per cent, while rival BHP traded relatively flat, at $33.48.

Fortescue Metals failed to cash in on the lift in iron ore, falling 2.8 per cent, to $3.84.

Mr Morgan said that while the iron ore price seemed to have found some support, investors were more likely to opt for the security of the bigger miners.

"The US reporting season is going to drive things more than anything else, including the big financials that report in the next few days," Mr Morgan said.

Overnight in the US, Alcoa, which is part of a global joint venture with ASX-listed Alumina, reported a $US143 million third-quarter loss.

When Australian markets opened, investors were unsure how to react, with Alumina falling as much as 2.9 per cent before rallying to finish up 2.3 per cent, at 90?.

The big four banks posted losses: ANZ dropped 0.2 per cent to $25.56, CBA fell 0.1 per cent to $56.65, NAB lost 0.4 per cent to $26.20 and Westpac slipped 0.7 per cent to $25.72.

Wesfarmers lost 0.7 per cent, to $34.52, while rival Woolworths lost 0.3 per cent, to $29.40.

Transurban dropped 9? to $6.10 as it said its share of revenue from its portfolio of toll roads rose 2.5 per cent in the September quarter, driven partly by an increase in tolls on some roads.

The Australian dollar rebounded yesterday after an initial sell-off, trading around $US1.0225, as demand for Australian bonds pushed the currency higher.