Australian shares fell today, surrendering early gains on worries about earnings in the troubled retail sector and as concerns about the European debt crisis flared again after S&P downgraded Spanish sovereign debt.

The benchmark S&P/ASX200 index lost 13.1 points, or 0.3 per cent, to 4362.1, while the broader All Ords fell 11.6 points, or 0.3 per cent, to 4433.4.

Losses were led by the materials sector, which fell 0.6 per cent. Energy stocks shed 0.5 per cent and financials slipped 0.2 per cent.

"Apart from the high-yielding stocks like Telstra and Commonwealth Bank, most stocks struggled to gain traction," said IG Markets strategist Stan Shamu.

For the week, the benchmark index lost 0.1 per cent. Year-to-date, the market is up 7.5 per cent.

Traders hit 'snooze' button

The sharemarket looked a little jaded to end the week, with traders appearing to have hit the ‘‘snooze’’ button despite the solid performance of US equities in recent days, said CMC Markets trader Tim Waterer.

‘‘Given the nice lead from Wall Street, 4400 looked to be there for the taking on the ASX200, however selling pressure on our heavyweight materials and energy stocks put those aspirations on hold.’’

In a timely reminder that the eurozone debt crisis is likely to continue to affect the local market next week, Spanish 10-year bond yields this evening briefly topped 6 per cent again, a level that is considered unsustainable for the country.

And European shares fell in early trade after three straight days of gains as the move by Standard & Poor's to cut its credit rating on Spain by two notches hurt sentiment.

JB Hi-Fi sparks sell-off

Locally, retailers were sold off after a steep profit downgrade by former market darling JB Hi-Fi, which fell 6.3 per cent. Electrical goods chain Harvey Norman lost 2.4 per cent and department store Myer was off 2.9 per cent.

Mr Shamu said weakness across the retail sector highlighted the need for an interest rate cut, widely expected when the central bank meets next Tuesday.

Twenty-six of 27 economists surveyed by Bloomberg expect the Reserve Bank of Australia (RBA) to cut its cash rate by 25 basis points to 4.00 per cent at its May 1 meeting, while one economist is tipping a 50 basis point cut.

Shares in Macquarie Group outperformed, climbing 3.0 per cent as investors welcomed a share buyback after the investment bank reported a slightly smaller-than-expected 23 per cent fall in second-half net profit.

PMP surges on bid

Shares in PMP more than doubled to 62 cents from 25 cents after the struggling printer and publisher said it has received a highly conditional offer in a range of 68 to 78 cents per share. That valued the company at between 220 million and $252 million.

On Tuesday, PMP shares had slumped after a profit downgrade due to a decline in the retail and publishing markets.

Shares in Sundance Resources jumped 3.2 per cent in early trade and ended up 1.1 per cent at 47 cents after the miner signed off on key terms on an iron-ore project with the Cameroon government.

That brought Sundance a step closer towards starting construction on its Mbalam project in west Africa and selling the business to China's Hanlong Mining.

Catering services firm Spotless asked for a trading halt to be extended until Monday, pending an announcement about takeover talks with Pacific Equity Partners (PEP).

BusinessDay with agencies