The share market has fallen as markets around the region reacted negatively to a further reduction in US economic stimulus measures, concerns over stability in emerging markets and figures confirming China's economic slowdown.
"There's a bit of negative sentiment all around the world," Lonsec senior client adviser Michael Heffernan said.
"When you get all major markets going down, we're just going to follow - it's the infectiousness of share markets."
There was a heavy fall when trade began, but the market clawed back some losses as the trading session progressed.
The US Federal Reserve said it will cut its asset buying program by another $US10 billion a month, although the move was widely anticipated.
An HSBC survey of factory purchasing managers confirmed a preliminary version released earlier this month that China's manufacturing sector had contracted in January.
The biggest slider on the local market was Treasury Wine Estates.
It dropped 91 cents, or 20 per cent, to $3.64 after it downgraded its profit forecasts due to weaker sales in Australia and China.
The major banks also fell, with Commonwealth Bank down 72 cents to $74.20, National Australia Bank down 33 cents to $33.27, Westpac down 31 cents to $30.89 and ANZ 32 cents weaker at $30.05.
In the resources sector, BHP Billiton shed 18 cents to $36.69 and Rio Tinto was steady at $65.80.
Fortescue Metals Group lost seven cents to $5.23 after it said bad weather during January would reduce the amount of iron ore it ships this financial year.
Explosives, mining services and chemicals supplier Orica climbed 17 cents to $23.45 as it said it was reviewing the future of its non-mining chemicals business.
* At the close on Thursday, the benchmark S&P/ASX200 index was down 40.9 points, or 0.78 per cent, at 5,188.1 points.
* The broader All Ordinaries index was down 41.2 points, or 0.79 per cent, at 5,199.4 points.
* The March share price index futures contract was 36 points lower at 5,138 points, with 29,177 contracts traded.
* National turnover was 1.47 billion securities worth $4.4 billion.
* The price of gold in Sydney was $US1,263.50 per fine ounce, up $US9.495 on Wednesday's closing price of $US1,254.005