At noon AEST on Wednesday, the benchmark S&P/ASX200 index was down 21.4 points, or 0.29 per cent, to 7,257.6, while the broader All Ordinaries was 23.9 points lower, or 0.32 per cent, to 7,455.
The local bourse rallied on Tuesday following the Reserve Bank's decision to hold interest rates at 4.1 per cent, but traders were more circumspect on Wednesday.
The big four banks all predict more hikes to come, with Commonwealth Bank expecting a terminal cash rate of 4.35 per cent and ANZ and NAB forecasting a 4.6 per cent peak.
US markets were closed overnight for the July 4 Independence Day holiday, while European indices finished flat.
Asian equities opened lower as China's export restrictions on rare-earth metals gallium and germanium sparked concerns of a semiconductor shortage, CMC markets analyst Tina Teng said.
Manufacturing data out of China was another worry for investors as the June Caixin purchasing managers index came in at 53.9 points, below expectations of 56.2.
"This provides further confirmation that the Chinese economy is slipping towards a double-dip slowdown and that further stimulus measures are required to reverse the spiral," IG markets analyst Tony Sycamore said.
But bad news was good news in the long-term, he said, as the underwhelming figures should provide impetus for an immediate policy response from Chinese authorities.
Finance stocks led the losses, down 0.7 per cent as the big banks all dropped.
CBA slid 0.7 per cent to $101.59, ANZ was down 1.2 per cent and NAB and Westpac both went backwards one per cent.
Maligned financial services provider AMP slumped seven per cent after confirming it lost a Federal Court class action challenging the validity of changes made to its "buyer of last resort" policy.
There was better news for the telcos, which were up 0.9 per cent on average, while utilities and real estate also gained.
Telstra rose one per cent and online jobs marketplace Seek jumped 2.6 per cent.
The big miners were mixed; Rio Tinto was up 0.1 per cent, but BHP and Fortescue Metals were 0.3 per cent and 0.1 per cent lower respectively.
Bellevue rallied three per cent after the goldminer signed an agreement with Genesis Minerals to process approximately 100,000 tonnes of ore from its WA Vanguard open-pit mine, while Dreadnought Resources climbed 11.5 per cent.
Logistics company Lindsay Australia was trucking along at 9.8 per cent higher a day after announcing the completion of its takeover of rural merchandise company WB Hunter.
Johns Lyng entered a trading halt at $5.43 as it announced its planned acquisition of fire safety companies Smoke Alarms Australia and Linkfire for a combined up-front value of $61.8 million with a potential future earn-out of up to $17.25m.
Australia's largest video game developer, Playside Studios, shot up 5.6 per cent to 38c a share.
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