Rate cut can't halt market's drift downwards

There was a rally after the Reserve Bank announced an interest rate cut, but it was not sustained and the market resumed its gradual drift lower.

The benchmark S&P/ASX200 index closed down 65.2 points at 4232.9, while the All Ordinaries fell 63.3 points to 4297.2.

The bourse opened about 1 per cent lower as investors absorbed the latest developments on the European debt crisis and reacted to a poor night on Wall Street. A disappointing set of Chinese manufacturing data also had investors looking to sell.

"Volumes are light because of the Melbourne Cup and the market is being weighed down by renewed concern over Europe," the IG Markets strategist Stan Shamu said.

The biggest declines came in the metals and minerals sector, which fell 2.48 per cent, while materials slid 2.4 per cent, as commodities prices were broadly weaker in overseas trading.

BHP Billiton ended down $1.03, at $36.77, while Rio Tinto closed down $2.06, to $67.15.

BHP approved the $US4.2 billion Caval Ridge Mine coal project in the northern Bowen Basin in central Queensland, in a joint venture with Mitsubishi Development.

The worst performer among leading stocks was QBE Insurance, which slid 51?, to $14.24. Rival insurer IAG fell 2? to $3.13, while Suncorp was down 11? at $8.48.

Two of the four big retail banks - Westpac and CBA - moved quickly to match the Reserve's decision to take 25 basis points off the cash rate.

The banks ended in the red - ANZ fell 32? to $21.36, CBA fell 57? to $48.70, NAB fell 60? at $25.10 and Westpac fell 38? to $21.94.

Qantas closed up 1.75? at $1.63 as normal operations resumed after the airline's decision to ground its fleet at the weekend. Rival Virgin Australia slipped 0.5? at 37?.

The spot price of gold was $US1718.53 per ounce, up $US7.23.

National turnover was 1.31 billion securities worth $3.19 billion. The December share price index futures contract fell 53 points at 4231.