Opening gains were reversed for the second straight session and the Australian sharemarket closed in the red as investors booked profits in banks and cyclical mining stocks after the November trade deficit came in much worse than forecast.
Bucking the negative lead from Wall Street, the S&P/ASX 200 index opened 0.5 per cent higher but sold off steadily throughout the session to close 27.1 points, or 0.58 per cent, off at 4690.2 points, the low of the day and on the heaviest volume in two weeks.
The trade deficit widened to $2.6 billion, the worst since 2008, up from an upwardly revised October deficit of $2.4, with gains in iron ore, up 23 per cent, and gas exports offsetting falling coal and gold exports. In total exports rose one per cent, but imports of mostly "consumption goods" increased 2 per cent.
"We expect a rise in commodity prices to help shrink the trade deficit in coming months," Forex.com analyst Chris Tedder said.
Also signalling ongoing headwinds in the domestic economy, the AiG performance of construction index increased from 37 points to 38.8 points, but remained deep in the contraction zone.
Overnight the US S&P 500 staged a late rally to close per cent as investor attention shifted to the earnings seasons which kicks off with Alcoa's report after the US market close tonight.
European stocks were supported by the relaxation and extension of the period for compliance of bank liquidity regulations.
The euro was boosted in Asian trade after Japan's Finance Minister Taro Aso said Japan would buy bonds issued by the European Stability Mechanism to help weaken the yen.
However, the Nikkei index fell 1.1 per cent as the yen strengthened pared weakness against most major currencies.
The Shanghai composite index reversed early losses to trade little changed at the close of the ASX after authorities announced listed companies would have to pay dividends of at least 30 per cent of net income to encourage investor interest in owning stocks.
The Australian dollar was little changed at $US1.0480 after a mixed session for the US dollar against risk assets.
Gold fell $US13 to $US1647 an ounce, while copper was little changed at $US8070 a tonne, having reversed early gains. Spot iron ore edged up US50Â¢ to $US153.90 a tonne on Monday.
Offering the prospect of some relief for exporters, HSBC global head of currency strategy David Bloom said hile the strong correlation with the "risk-on, risk off" factor driving financial markets had played in the dollar's favour in 2012, "we believe it will be a different story in 2013".
"Any fall in the AUD driven by risk sentiment may be the perfect catalyst to force the market to reassess the currency's value on a fundamental basis too," he said.More to come
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