Resurgent fears of US Federal Reserve tapering drove global borrowing costs higher and pushed the Australian sharemarket into the red again.
At the close of trade, the benchmark S&P/ASX200 index was down 23.4 points, or 0.4 per cent, to 5256.1 while the broader All Ordinaries index had fallen 23.9 points, or 0.5 per cent, to 5249.6.
The sell-off was prompted by solid US manufacturing data overnight, which raised the prospect of the Fed announcing a reduction in its bond purchasing program as soon as its December 18 meeting.
Beating forecasts for a pullback, the US ISM manufacturing index rose from 55 points to 57.3 points, while the employment component underpinned forecasts for a solid non-farm payroll number on Friday.
"US yields were higher, gold fell and the US dollar was stronger," National Australia Bank currency strategist Emma Lawson said.
"All consistent with a preparation for the beginning of Fed normalisation; not that it means policy tightening, of course."
She said while the manufacturing data was "very good, and encouraging for developed market growth", retail sales data was "not so rosy" as US Black Friday weekend sales fell 2.9 per cent in total.
"There were more people shopping, but they bought less," she said.
The Australian dollar fell 0.9c to US90.65c despite the Reserve Bank unsurprisingly leaving the cash rate unchanged at 2.5 per cent and its upbeat outlook on the economy dashing hopes for further monetary relief.
Australian government 10-year yields climbed 4.1 points to 4.326 per cent.
The Shanghai composite index was slightly lower at the close of the ASX, while in Tokyo the Nikkei index was up 0.7 per cent as the yen fell against the US dollar.
Gold slumped $US20 to $US1220 an ounce while copper fell one per cent to $US6975 a tonne.
Miner Rio Tinto's announcement of massive cuts in which capex will be slashed from $US17.6 billion last year to $US8 billion by 2015 prompted falls in the share prices of the miners.
IG market strategist Stan Shamu said falls on Chinese markets following a slowdown in non-manufacturing activity there kicked off falls on the ASX.
"Australia is a mining driven economy so if the miners are cutting back spending it is not good for confidence,” he told AAP.
However there was a bright spot in RBA governor Glenn Stevens saying there were signs the Australian economy was to rebalance away from its reliance on mining and resources investment.
That was backed up by data this morning showing a rise in Australian retail spending for the fourth month in a row as consumer confidence grew.
Rio Tinto lost 36 cents to $65.49 and BHP Billiton closed 45 cents worse at $36.45.
Gold miner Newcrest's share price continued its volatile year, plunging 52 cents, or 6.7 per cent, to $7.25 as the precious metal fell for reasons related to talk of tapering the US's stimulus program.
Among banks, Westpac was down 30 cents at $32.30, Commonwealth Bank also dropped 30 cents to $76.55, ANZ retreated 14 cents to $31.71 and National Australia Bank shed 12 cents to $34.19.