The local sharemarket fell for the seventh time in the past eight sessions, joining a regional slide before the US Federal Reserve's meeting this week and after a measure of factory activity in China unexpectedly fell to a three-month low.
The benchmark S&P/ASX 200 Index dropped 8.8 points (0.2 per cent) to 5089.6 and the broader All Ordinaries Index lost 8.4 points (0.2 per cent) to 5093.1.
Global investors remain cautious over a possible reduction in US central bank stimulus this week.
Russell Investments strategist Graham Harman said: "The great rotation out of cash into equities will continue in 2014, spurred by lacklustre returns from government bonds, strong reported results from equity funds, continuing low-inflation and a recovery in global growth."
Energy was the worst-performing sector, down 0.6 per cent as the West Texas Intermediate crude oil price eased to $US96.34 a barrel.
Woodside Petroleum lost 1.4 per cent to $37.22. Senex Energy was the worst-performed stock, down 8.4 per cent to 70.5¢, after junior oil and gas explorer AWE rejected its merger proposal. AWE rose 7.2 per cent to $1.27.
Three of the big four banks were lower. Commonwealth Bank lost 0.8 per cent to $73.63, Westpac 0.7 per cent to $30.77 and National Australia Bank 0.5 per cent to $33.20. ANZ bucked the trend, up 0.1 per cent to $30.29.
"While local shares are likely to become less attractive to global investors ... the S&P/ASX 200 will be driven higher by local investors searching for tax-effective yield stocks, such as the big four banks and Telstra," Mr Harman said.
Telstra rose 0.2 per cent to $4.98.
Macquarie Group rose 0.3 per cent to $51.50, after trading without the rights to an allotment of Sydney Airport stapled securities.
Insurance Australia Group, owner of NRMA and CGU, which last traded at $5.70, entered a trading halt to announce a $1.85 billion deal to buy the Wesfarmers Australia and New Zealand insurance underwriting business. The deal is subject to the approval of competition regulators. QBE Insurance Group dropped 2.3 per cent to $10.36.
Wesfarmers, owner of Coles, rose 0.5 per cent to $41.51 as analysts endorsed the deal to divest a non-core asset.Woolworths edged up 1¢ to $32.66.
Retail stocks were mostly higher.