The Australian sharemarket failed to consolidate above the 5000 mark, defying a strong overseas lead and an early rally to finish underwater on a big day of profit results.
BHP Billiton and Qantas were among a slew of companies reporting on Tuesday, drawing investor attention back to local earnings, but selling began after regional bourses opened weaker.
Oil and cost falls mean smoother ride for Qantas
Qantas' domestic business, oil prices and cost cutting are big reasons why the airline has enjoyed a strong turnaround.
At close of trade the S&P/ASX 200 ended 22 points or 0.4 per cent lower at 4979.6, while the All Ordinaries ended 0.4 per cent or 17 points lower at 5039.1.
The mid-session tumble was a result of the reversal of Monday's buoyancy that came from China, CMC Markets chief market strategist Michael McCarthy said.
The Shanghai Composite Index was down 1.2 per cent in afternoon trade after rising 2.4 per cent on Monday on hopes that China's new securities regulator would take steps to stabilise its volatile equity market.
The banks proved the biggest drag on the local market on Tuesday. Commonwealth Bank of Australia fell 1.3 per cent to $73.28, Westpac Banking Corporation lost 1.5 per cent to $29.65, ANZ Banking Group slid 0.9 per cent to $23.12 and National Australia Bank was down 0.8 per cent to $25.46.
"It's not the banks, it's index selling," Mr McCarthy said. The banks are victims when indexed funds sell, given their heavy weighting in the top 200.
The materials sector was the day's winner, as the sub-sector posted a 0.9 per cent gain, helped by strong gains in BHP and the continued lift in iron ore, which jumped above $US50 a tonne on Monday, its highest point since October.
The diverging effects the prolonged rout in commodities has had on corporate Australia was highlighted by the profit results on Tuesday.
BHP Billiton posted an interim $US5.7 billion net loss and cut its dividend by 75 per cent to just US16¢ a share, also including writedowns on its Brazilian joint-venture mine after the November disaster.
Meanwhile, Qantas reported an underlying profit before tax of $US921 million, up from $375 million in the same period last year, helped by a $448 million fuel saving.
"The speculation about BHP having to withdraw its progressive dividend has been around for at least six months... finally we've got an answer, it's definitive as opposed to speculation," said Tim Schroeders, Pengana Global Resources Fund senior fund manager.
"There's that pyschological impact that comes into play in this type of environment."
BHP was the day's strongest stock by weighting, up 2.6 per cent to $17.63, while rival miner Rio Tinto rose 1.4 per cent to $44.62.
Qantas shares fell 5 per cent to $3.79 as the airline held off announcing a dividend payout and the higher oil price added some pressure.
The recent rally in resources stocks was not sustainable without continued commodity price strength on the back of a lift in demand, Mr Schroeders said.
"We've seen some good bounces in the likes of iron ore and oil," he said. "But not to the point where analysts are prepared to stick their necks out and say 'the world's changed'."
Elsewhere, Telstra fell 2.1 per cent to $5.17, Woolworths lost 0.3 per cent to $22.94 and Wesfarmers fell 0.5 per cent to $43.62.
The day's best performing stock was Seven Group, adding 10.4 per cent to $5.10 after posting an interim net profit after tax of $7.1 million, down 90 per cent, but maintained its interim dividend of 20¢ a share.
Qube also climbed, up 10 per cent to $2.21 on news it was considering teaming up with rival bidder Brookfield Infrastructure for a $9 billion takeover bid of Asciano.
The worst performing stock was iSentia Group, whose shares plunged 13.6 per cent to $3.80 despite posting a 22 per cent rise in revenue.
Industrials was the only sector with materials to gain, up slightly by 0.02 per cent. The worst performing sector was telecommunications, dragged down 2.1 per cent with Telstra.