Materials and energy pull down index

The benchmark S&P/ASX 200 Index dropped 22.8 points, or 0.5 per cent, to 4385.5.

Among the sectors, materials led the decline, falling 1.3 per cent, while energy lost 1 per cent. Health bucked the trend, adding 0.7 per cent.

CommSec analyst Steven Daghlian said losses were not unexpected after Wall Street finished down on Friday.

"The fact that both [materials and energy] . . . fell was more than enough to pull the rest of the market into the red," he said, noting that these two sectors combined make up about 30 per cent of the market.

BHP fell 0.9 per cent to $33.41, rival Rio Tinto lost 2.4 per cent, to finish at $54.97, and Fortescue dropped 0.3 per cent to $3.60.

With the Australian economy so heavily tilted towards Chinese growth, manufacturing data from the world's second-largest economy, due out on Friday, will be one of the key factors for the week.

"We've seen a little bit of a negative trend in China recently, or at least contraction in the manufacturing space, so if we continue to see that, markets aren't going to react in a positive light," said Mr Daghlian.

Goldminer Newcrest, which was trading ex-dividend, fell 2.6 per cent to $28.14 as gold prices pulled back from near seven-month highs. The company also announced last week that its operation in Papua New Guinea is operating at reduced capacity due to an electrical issue.

The spot gold price was down about 0.7 per cent to $US1760.09 an ounce.

Among the big banks, ANZ dropped 0.6 per cent to $24.70, CBA lost 0.1 per cent to $55.08 and Westpac fell 0.2 per cent to $24.58, while NAB broke the trend, adding 0.4 per cent to finish at $25.50.

Speculation that Spain will unveil a bailout program later this week gave investors something to cheer, but with French President Francois Hollande and German Chancellor Angela Merkel unlikely to agree on a banking union that would give the European Central Bank power to supervise all eurozone banks, the confidence soon diminished.

The two leaders must agree on a plan by October 10, or abandon it completely.

"Germany is obviously in no rush to do that because the current situation in Europe will ultimately have them being the guarantor for most of these debts. They're in no hurry to do that without a proper plan in place," said IG Markets analyst Stan Shamu.

He expected the Australia market to finish higher for the quarter, but believed results could be better.