THE share market closed sharply lower, reversing earlier gains on the day, as investors worried over the federal budget and the cost of the trillion dollar bailout of the debt-laden euro zone economies.
By 16:15 (AEST)the benchmark S&P/ASX200 index had fallen 51.8 points, or 1.13 per cent, to 4548 points, while the broader All Ordinaries index was 49 points, or 1.06 per cent, down at 4573.2 points.
On the Sydney Futures Exchange, the June share price index futures contract was 58 points lower at 4552 points, on volume of 44,627 contracts.
City Index market strategist Michael McCarthy said the local market started on a positive footing and then dropped heavily from 11:30 on very good trading volume.
"We're susceptible, given the events over the last week, to fear,'' he said.
"In the absence of further positive stimulus, we will tend to see selling dominate until markets settle down again.''
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A huge relief rally on European and Wall Street bourses overnight was driven by Europe's package to prevent sovereign debt default in the euro zone.
However, investor relief proved short-lived on the local market.
"We are seeing a lot of noise,'' Mr McCarthy said.
"The focus on Greece and Europe has obscured some improving economic indicators from around the globe and in particular the US.
"The broad economy appears to be catching up with the very strong performance the global markets have put in in the last 12 months.''
China's economy grew strongly in April, with government economic data showing inflation running at 2.8 per cent, retail sales surging 18.5 per cent and industrial output jumping 17.8 per cent on the previous corresponding month.
Iron ore shipments for April were down on the previous month according to the Port Hedland port authority and that pushed shares in local resources giants down, Mr McCarthy said.
BHP Billiton lost 87 cents, or 2.23 per cent, to $38.13, while rival Rio Tinto fell $1.70 or 2.47 per cent, to $67.10.
Fortescue Metals Group slumped 22 cents, or 5.02 per cent, to $4.16.
Big banks also fell.
Commonwealth Bank fell 90 cents to $54.85, Westpac lost 19 cents to $24.82 and NAB gave up 28 cents, or 1.1 per cent, to $25.26.
ANZ dropped 26 cents, or 1.14 per cent, to $22.52.
Diversified financials also took a hit of around one per cent, and second-tier lender Bank of Queensland lost 25 cents, or 2.08 per cent, to $11.78.
Major gold stocks slipped despite the spot price of gold in Sydney climbing to $US1206.20 per fine ounce, up $US9.04 from Monday's closing price of $1,197.16.
Takeover target Lihir Gold eased two cents to $3.90 while suitor Newcrest Mining traded down 23 cents to $31.41.
Major retailers lost ground, with Woolworths down 15 cents to $27.08, Wesfarmers giving up 30 cents, or 1.05 per cent, to $28.40.
David Jones was off four cents at $4.39, although JB Hi-Fi jumped 31 cents, or 1.63 per cent, to $19.28, and The Reject Shop firmed 16 cents, or 1.01 per cent, to $15.99.
