Shares drifted lower as local data showed that while business conditions and sentiment improved again in June, consumer confidence continued to soften in the wake of federal budget cuts announced in May.

The benchmark S&P/ASX 200 Index declined 0.2 per cent to 5510.9 points, while the broader All Ordinaries Index eased 0.1 per cent to 5498.5 points on Tuesday, as BHP Billiton and the big four banks all receded.

Local shares dipped 0.3 per cent when the session opened after taking a weak lead from offshore. Wall St drifted lower on Monday night as, in the absence of any major news out of the United States, a weaker than expected industrial production report in Germany pulled European markets lower. Major markets around Asia were lower in the afternoon session.

In domestic economic news, the closely watched National Australia Bank monthly business confidence index rose from 7.3 points to 7.8 points in June, while the index of business conditions lifted from -0.8 points to 2.3 points.

While positive, the result was not strong enough to disrupt the consensus view that local interest rates are set to remain on hold for many months.

“Overall the survey suggests the economy is tracking close to the Reserve Bank’s expectations. Growth is picking up and inflation pressures are fading,” BNP Paribas market economist Mark Waltonsaid.

The strongest gains in business confidence were from construction companies. Building materials supplier CSR got a boost, up 4 per cent at $3.70.

Meanwhile a weekly ANZ Bank / Roy Morgan survey of consumer confidence fell by 0.3 per cent in the seven days to July 6.

“The divergence in business and consumer confidence over the past 12 months, but particularly since the federal budget announcement in May is a major theme in the local equity market at the moment,” Platypus Asset Management chief investment officer Donald Williams said.

“We expect shares to dip in the lead up to August company reporting season, but longer term the outlook for the ASX is still pretty good so long as company earnings growth keeps grinding ahead,” Mr Williams said.

Resources giant BHP Billiton dipped 0.2 per cent to $37.59, while main rival Rio Tinto added 0.2 per cent to $62.39. The spot price for iron ore, delivered in China, shed 0.6 per cent to $95.90, but when the local market closed on Tuesday iron ore futures trading in China was tipping a pick-up in iron ore prices overnight.

Drilling company Boart Longyear dropped 4.9 per cent to 19.5¢ amid reports its re-structuring and re-financing plans have ground to a halt. Rival NRW Holdings was the best-performing stock in the ASX 200, up 4.2 per cent at $1.

Commonwealth Bank of Australia edged down 0.1 per cent to $81.32. Morgan Stanley analysts issued a note predicting the impact of the financial planning scandal on the CBA will be “modest”. The rest of the big four banks moved lower. ANZ Banking Group lost 0.8 per cent to $33.59, National Australia Bank fell 0.4 per cent to $33.59, and Westpac Banking Corporation shed 0.4 per cent to $34.22.

Among other major blue-chip stocks Telstra Corporation was steady at $5.32, Woolworths fell 0.5 per cent to $36.31, and Wesfarmers, owner of Coles, edged up 1¢ to $43.02.

The recent spate of merger and acquisition activity continued as Elders revealed potential buyers had expressed interest in the rural services group. No formal offer has been made. The stock closed unchanged at 22.5¢.

Healthcare was the best-performing sector, up 0.8 per cent, as pathology clinic network Sonic Healthcare lifted 2 per cent to $17.65, while vaccine exporter CSL added 0.4 per cent to $68.30.

On Wednesday morning, the direction of the local market is expected to be set by the tone of May data released overnight, with investors hoping the latest US consumer credit report and United Kingdom industrial production data will show global growth is improving .