THE sharemarket lost ground after a mixed session, as miners and banks led the retreat amid caution ahead of the start of the US earnings season and debt ceiling negotiations.
The S&P/ASX 200 Index closed 27 points lower to finish at 4690.2, while the broader All Ords ended Tuesday's trading session half a percentage point down at 4712.3.
"There's a few headwinds in the shorter term starting to blow," said Patersons Securities broker Lew Fellowes. "While markets have had a good run into the end of the calendar year, there are a few issues that could potentially put a little bit of pressure on the domestic market."
Questions about whether the recent rise in iron ore prices, which have soared to near 15-month highs, was sustainable added to further caution in the market, CommSec analyst Juliette Saly said.
Mining giants closed lower, with Rio Tinto falling for the second day, closing 80¢ down at $66.60. BHP Billiton slipped 31¢ to $37.50, while Fortescue dropped 15¢ to $4.74.
Westpac finished flat at $26.28 as the three other big banks - ANZ, National Australia Bank and Commonwealth Bank - all closed lower. Commonwealth Bank fell about 2 per cent on Tuesday after reaching its highest-ever share price in the previous session.
Energy stocks gained on higher oil prices, with Woodside rising 1 per cent. Oil and gas producer Linc Energy rose 10.9 per cent after it said it broke an oil production milestone of 6000 barrels a day.
Coal seam gas producer Westside added 1.2 per cent after it said it was continuing discussions with a party that submitted a conditional takeover proposal in November.
Defensive stocks were mixed, with Telstra up 0.2 per cent, while blood products maker CSL was down 0.4 per cent.
"I don't think there's a lot of conviction at the moment," Ms Saly said. "There are a few tests for markets this week. We've got the European Central Bank meeting and also the Bank of England meeting. And there's the debt ceiling negotiations at the end of February."
The US market was expected to have a fairly quiet session overnight ahead of aluminium manufacturer Alcoa's release of its earnings results for the fourth quarter of 2012 after the closing bell.
Meanwhile, the dollar was slightly higher, despite losing ground after data showed Australia recorded its biggest trade deficit since March 2008. Late on Tuesday, the dollar was at US104.82¢, up slightly from US104.72¢.