Market drifts as investors look to budget

But the bourse dropped slightly because investors could not quite shake a negative lead from Wall Street.

The S&P/ASX200 index was down 6.9 points at 4429, while the All Ordinaries index was down 10.3 points at 4494.5.

Analysts suggested trading was quiet ahead of the federal budget next week, with trading volumes low overall.

Much of the focus was on the banks. NAB, ANZ and Westpac all posted their half-year earnings this week. Westpac, the country's second-biggest bank, yesterday reported its smallest increase in first-half profits since 2009 due to competition for deposits putting pressure on margins.

After the Reserve Bank's surprise rate cut, a tussle seemed to break out among the banks yesterday to see who could curry the most favour with customers, or avoid the deepest chagrin, by passing on a percentage of the cut.

Analysts said Commonwealth Bank's decision to pass on 40 basis points was a sign it was taking the fight to NAB, the bank with the lowest standard variable mortgage rate of the majors.

Westpac shares rose 22? to $22.91 and NAB 10? to $25.20. Commonwealth was steady at $52.68, while ANZ fell 16? to $23.64.

New data showed beer consumption had fallen to a 65-year low. The total apparent consumption of alcohol fell for the fourth year in a row. "[But] Aussies aren't cutting back on the drink completely, as consumption of spirits has lifted," said a CommSec equities economist, Savanth Sebastian.

"Perhaps in the current climate, more people are looking for a good, stiff drink."

Wesfarmers fell 17? to $30.57, but Woolworths shares rose 43? to $26.85. Retailer Harvey Norman said pre-tax profit for the first nine months of the financial year fell 25 per cent as sales continued to fall in the three months to March. The stock fell 3? to $2.04.

A number of other retailers also struggled. JB Hi-Fi fell 14? to $9.40, The Reject Shop fell 5? to $11.75 and Billabong fell 6? to $2.54.

With the cash rate sitting on 3.75 per cent, the bond market was firmer after investors fled to safe haven assets following the release of weak economic figures from China and the US.

The June 10-year bond futures contract was trading at 96.480 (implying a yield of 3.520 per cent), up from 96.410 the day before.

The RBC Capital markets fixed income strategist Michael Turner said bond traders were awaiting the European Central Bank's interest rate decision during the offshore session last night, as well as a Spanish government bond auction.

The dollar fell about one-third of a cent to below US103? after the publication of data showing weaker than expected Chinese economic output.

The Reserve Bank releases its quarterly monetary policy statement today.

with AAP