The S&P/ASX200 fell 9.4 points on Wednesday, or 0.11 per cent, to 8,911.4, as the broader All Ordinaries lost 11.4 points, or 0.13 per cent, to 9,102.9.
Energy and utilities stocks led the market as the broadening Middle East conflict sent Brent crude towards $US100 a barrel for the first time since July, while record copper prices bolstered BHP and Rio Tinto.
Banks and retail stocks swung in the other direction, continuing their decline after Tuesday's dire consumer and business confidence data, while the health care sector also dragged.
"The ASX 200 has extended its losses into a second session, with investors still firmly on edge as higher oil prices, rising bond yields and a more hawkish Reserve Bank keep inflation and interest-rate risks front and centre," Vantage senior market analyst Hebe Chen told AAP.
"The bigger issue is that these pressures are arriving together, making it increasingly difficult for the market to find a clear reason to add risk."
Forecasts for higher borrowing costs opened the door to a more volatile and selective run into year-end, with interest rate- and growth-sensitive sectors likely to remain under pressure, Ms Chen said.
The Reserve Bank will take its interest rate decision on September 29.
The slump in bank shares continued to loom large, with the financial sector effectively wiping all of September's in the past two sessions, as fears about the housing market and retail spending continued to mount.
A two per cent drop in CSL shares weighed on the health care sector after the blood plasma giant went ex-dividend, putting a small dent in its more than 90 per cent rally since June.
In company news, Austal shares rallied more than seven per cent after it confirmed it had received a takeover offer from Wildcat Resources worth up to $US1.35 billion ($A1.86 billion).
Cellebrations and IGA owner Metcash swung in the other direction after an update noted trading conditions remained challenging despite a partial recovery in tobacco sales.
The Australian dollar is trading at four-month highs of 72.33 US cents, up from 72.11 US cents on Tuesday at 5pm.
ON THE ASX:
* The S&P/ASX200 fell 9.4 points, or 0.11 per cent, to 8,911.4
* The broader All Ordinaries lost 11.4 points, or 0.13 per cent, to 9,102.9
One Australian dollar trades for:
* 72.33 US cents, from 72.11 US cents at 5pm AEST on Tuesday
* 110.89 Japanese yen, from 110.87 Japanese yen
* 62.14 euro cents, from 62.05 euro cents
* 53.34 British pence, from 53.27 pence
* 123.42 NZ cents, from 123.17 NZ cents
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