THE sharemarket closed more than half a percentage point lower after the Reserve Bank cut the cash rate to 3 per cent amid a weak global growth outlook.
At the close, the benchmark S&P/ASX 200 Index was 27.9 points, or 0.62 per cent, lower at 4503.6.
The Reserve Bank cut the cash rate by 25 basis points to 3 per cent, a level not seen since the global financial crisis, and said global growth was expected to be below average due to the European debt crisis and the looming US fiscal cliff.
Options Xpress analyst Ben Le Brun said overall it had been a disappointing day.
"When perception gets ahead of reality we start to see some wild fluctuations or some wild price movements, and that's certainly what we saw," Mr Le Brun said.
All sectors of the market, with the exception of healthcare, turned negative after the interest rate cut and the release of the RBA's accompanying statement. Investors had priced in some softness before the overseas session.
The chairman of retailer Premier Investments, Solomon Lew, told the company's annual meeting the macro-economic environment remained challenging. Premier Investments shares fell 7? to $6.40.
Gold stocks were weaker, with Newcrest Mining down 46? at $24.80. BHP Billiton was down 28? at $34.26, while Rio Tinto was 13? lower at $58.41.
In the banking sector, ANZ shares were 10? lower at $24.59, while Westpac shares were down 14? to $25.42. National Australia Bank fell 4? to $24.25 and Commonwealth Bank dropped 31? to $60.50.
The spot price of gold in Sydney was $US1701.62 an ounce, down $US17.63.
National turnover was 1.2 billion securities worth $3 billion.
Meanwhile, the dollar rallied after the central bank's interest rate cut.
Late on Tuesday, the dollar was trading at US104.38?, up from US104.06? on Monday.
Easy Forex currency dealer Anthony Botros said the dollar rallied on the decision because the 25-basis-point interest rate reduction was fully expected by the market and further interest rate cuts from the RBA looked unlikely.
"They said recent easings of late are starting to work their way through the economy and they foresee that inflation pressure will be contained in the next one to two years," Mr Botros said.
"So the market has taken that on board as though the rate cut we saw in October and in December might be all for the time being."