The S&P/ASX200 fell 37.7 points on Tuesday, down 0.43 per cent, to 8,654.3, as the broader All Ordinaries dropped 39.5 points, or 0.44 per cent, to 8,875.
The slump followed a relief rally on Monday following reports the US and Iran were closing in on an agreement to end hostilities and open the Strait of Hormuz.
"Nerves are set to be tested by fresh reports of explosions and blasts near Bandar Abbas — the critical gateway to the (Hormuz) strait — and other southern coastal areas, where US fighter jets appear to have targeted IRGC speedboats," IG market analyst Tony Sycamore said.
"It's a sharp reminder that the deal could still collapse at the eleventh hour, much like the five previous attempts before it."
Oil prices have risen about two per cent since the attacks were reported, but Brent crude is still hovering below $US96 a barrel, significantly lower than where it began the weekend above $US105.
Woodside was trading slightly better than flat, while Santos eked a 0.3 per cent improvement to $7.97 as it flagged plans to cut its net debt by $2.5 billion.
Coal producers retreated from Monday's rally, which came after an explosion at a mine in China raised concerns of a supply shock.
Miners more broadly eased off from a strong start to the week, with basic materials slipping 0.4 per cent as gold dipped almost one per cent to $US4,532 ($A6,345) an ounce on Tuesday morning.
BHP was sluggish, easing 0.4 per cent to $59.89, while Rio Tinto swung a similar magnitude in the other direction.
The heavyweight financials sector lost 0.7 per cent, with NAB leading three of the big four banks lower and ANZ trading just above break-even.
IT stocks, utilities and real estate trusts were under pressure, dipping between one and 1.6 per cent.
Consumer discretionaries and industrials were the only two segments making gains, each up a modest 0.2 per cent.
Interim earnings season continues, with Infratil, ASX and Flight Centre tumbling on their respective updates.
Bourse operator ASX fell sharply, down more than nine per cent after flagging expense growth of up to 16 per cent next financial year, driven by technology modernisation and its response to a regulator inquiry.
Shares in online retailer Kogan charged more than 15 per cent higher after sales and revenue surged more than 18 per cent over the 10 months to April.
Fisher & Paykel Healthcare also rallied, up almost seven per cent after its full-year net profit after tax swelled by almost a quarter on the previous year to $468.5 million.
The Australian dollar is buying 71.64, about steady with Monday afternoon's 71.66 US cents ahead of Wednesday's hotly-anticipated April inflation print.
16°C