QBE shock and China CPI weigh on stocks

Shares in the big insurer plummeted to an eight-year low after it said after-tax profit for calendar 2011 could halve due to a record level of claims from natural disasters.

The stock ended down 12.7 per cent at $11.35, accounting for up to a fifth of the market's fall for the day.

"There won't be too many brave investors stepping in to catch this falling knife," said City Index chief market analyst Peter Esho.

At the market close, the S&P/ASX 200 Index was down 6.52 points, or 0.2 per cent, at 4181.

The other big drag on the benchmark was data showing that inflation in China Australia's largest trading partner had failed to fall below the 4 per cent forecast by economists.

Investors were looking to a meeting overnight of the European Central Bank that could produce a cut in interest rates to stimulate the region's ailing economy.

"There's definitely the expectation, that they'll move to lower the interest rates tonight," said Austock Securities senior client adviser Michael Heffernan.

Among yesterday's top gainers was embattled retailer Billabong, which rose 3 per cent to $1.865. Bargain-hunting investors swooped on the stock after holiday sales proved better than feared.

Consumer discretionary stocks were the among day's top performers, gaining

0.4 per cent. Myer rose

1.5 per cent to $2.06 and Harvey Norman closed

1.3 per cent higher at $1.98.

RBS Morgan Brisbane's director of equities, Bill Chatterton, said retailers looked cheap after a slew

of profit warnings sent

share prices crashing in

the run-up to Christmas.

Positive noises from fashion chain Noni B and interest from private equity groups was also spurring the sector. "It looks like the Christmas period wasn't catastrophic, so you might get a little bit of bounce back in some of those retailers," Mr Chatterton said.

Resource stocks ended higher, driven by a rise in metal prices. Rio Tinto finished with a gain of 0.8 per cent at $64.73 after the miner said it had taken complete ownership of Canadian uranium company Hathor Exploration.

Shares in mineral sands producer Iluka Resources, however, shed 1.2 per cent to $16.70 after it reported that production in the December quarter was down 5 per cent.

Gold continued its steady advance, with the spot price at the close up $US9.50 at $US1645.7 an ounce.