Confidence fragile as rates put on hold

THE sharemarket pared back early losses to finish lower for the second consecutive day as weaker global markets weighed on sentiment.

The losses came after global markets posted significant falls for the first time in 2013.

At the close on Tuesday, the benchmark S&P/ASX 200 index was down 24.8 points, or 0.51 per cent, at 4882.7, while the broader All Ordinaries index was down 26.5 points, or 0.54 per cent, at 4902.6.

US and European markets fell sharply overnight, highlighting how fragile investor confidence is amid claims of improper political payments in Spain, which sent bond yields there soaring.

The long-term worry was if the Spanish instability dragged on, it could be unsettling for markets.

Options Xpress analyst Ben Le Brun said Monday's losses had insulated the local market from heavier falls on Tuesday as global investors worried about Europe.

"It could have been a lot worse for the Australian market," Mr Le Brun said. "It's been mildly encouraging, given the leads and the indicators that we go off."

The profit-reporting season had a lacklustre start, with Cochlear's share price shedding 9 per cent, while the Reserve Bank's decision to keep the cash rate steady did not stimulate investors.

Most sectors were down, including the dominant financials and resources, with only defensives gaining.

Macquarie Group updated the market on its operations, saying its capital markets businesses continued to experience subdued conditions. Macquarie forecast a jump in net profit of 10 per cent, but that was below expectations and the investment bank's shares were down $1.57 at $37.16.

Among the major banks, Commonwealth eased 41¢ to $64.30, ANZ gained 9¢ to $26.64, National Australia Bank lost 26¢ to $27.79 and Westpac slipped 2¢ to $27.92.

In the resources sector, BHP Billiton dropped 63¢ to $37.18, and Rio Tinto fell 66¢ to $67.33. Fortescue Metals shed 5¢ to $4.74.

Cochlear returned to profitability with net profit of $77.7 million for the six months to December, up from a $20.4 million loss in the previous corresponding period. But investors were unimpressed, with its shares down $7.50, or 9.3 per cent, at $72.96.

Toll road operator Transurban posted a first-half profit drop of 16 per cent to $81.1 million, and its securities were up 6¢ at $6.16.

The price of gold in Sydney closed at $US1675.86 per fine ounce, up $US3.21.

Meanwhile, the bond market was stronger, propped up by the RBA's decision to keep interest rates on hold. The March 10-year bond futures contract was trading at 96.530 (implying a yield of 3.470 per cent), up from 96.435 (3.565 per cent) on Monday.