A drop in capital expenditure, falling iron ore spot prices and Japanese institutional selling have contributed to the S&P/ASX200 Index's slide.

Australian stocks fell as much as 1.5 per cent after the Australian Bureau of Statistics reported capital expenditure in the country fell while an increase in building approvals raised concerns the economy will not be supported by further rate cuts.

At 1345 AEST the S&P/ASX200 Index was down 55.128, or 1.1 per cent, to 4,919.60, after earlier falling as low as 4,897.80.

Meanwhile, there are reports from trading desks that Japanese fund managers have been selling their holdings in Australian shares. Japanese institutional investors may want to cover potential redemptions by their homeland clients who have been oscillating between waves of selling and buying in the last week because of a rise in Japanese bond yields, despite the Bank of Japan pumping billions of yen into the financial system.

Miners led declines after the spot price for iron ore fell 8.6 per cent in two days. BHP Billiton dropped 52 cents, or 1.5 per cent, to $34.35. Rio Tinto fell $1, or 1.8 per cent, to $53.70 and Fortescue plunged 21 cents, or 6 per cent, to $3.32 and was the biggest decliner in percentage terms in the index.

The spot price for iron ore on the New York Mercantile Exchange fell 4.6 per cent to $US109.33 a tonne on May 29 after dropping 4.1 per cent on May 28, on continued concerns the Chinese economy is slowing faster than expected and the country’s steelmaker will need less iron ore than previously forecast.

The spot price on iron ore imported through the Chinese port of Tianjin has dropped 8.9 per cent since May 22 to $US112.90.

Analysts now see the spot price for iron ore falling to less than $US100 a tonne. UBS forecasts the iron ore spot price will be $80 or below in the third quarter this year. The high this year for iron ore spot prices imported through Tianjin was $158.90 on February 20.

To make matters worse for the miners, the Australian dollar has appreciated against the US currency. At 1354 AEST AEST the dollar was at 9663 cents against the greenback, up 0.5 per cent from yesterday where it was at 9620, according to Bloomberg data.

Investors said the gloomy economic picture for the Australian economy was confirmed when the Australian Bureau of Statistics said total new capital expenditure in Australia fell 2.7 per cent from the December to the March quarter to $39.08 billion. Building and structure capital expenditure fell in April by 3 per cent, to $24.42 billion.

The bureau also reported approvals for private sector houses rose 1 per cent in April, the fourth consecutive monthly increase, raising concerns among some in the market the expected rate cuts by the Reserve Bank many not eventuate.

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