Shares reached record heights for the sixth consecutive trading day on the Australian market before investors saw signs of rampant inflation in China.
The benchmark S&P/ASX200 index hit an all-time high of 7334.90 points in the first hour of trading.
Yet buying turned to selling after China revealed factory gate prices increased at the fastest pace since September 2008.
The producer price index rose nine per cent from a year earlier in May.
CommSec market analyst James Tao said investors had a negative response to the data.
He said higher inflation could lead central banks to lift interest rates or ease monetary policy, which have been helpful for shares.
"The ASX rally we've seen in the past 12 months is much to do with there being a lot of easy money," Mr Tao said.
China's consumer price index rose 1.3 per cent, which was less than expected.
US futures were little changed in the wake of the China data.
The lack of demand for Australian shares caused the ASX200 to close lower by 22.4 points, or 0.31 per cent, to 7270.2.
The All Ordinaries closed down by 20.3 points, or 0.27 per cent, to 7522.
US inflation data, due on Thursday night, will also test investor nerves.
While experts expect inflation rates well above the Federal Reserve target of two per cent, economists say inflation will ease in coming months.
This would give the US central bank more time to wind back policy settings.
US markets overnight closed little changed or higher.
In Australia, Victorian state leaders said Melbourne's two-week coronavirus lockdown will end on Friday but some rules will remain across the state.
These include a 25km travel limit for Melburnians.
The easing of the lockdown helped shares in travel providers.
Corporate Travel Management rose 2.38 per cent to $21.49, Webjet climbed 1.56 per cent to $5.20, and Flight Centre gained 1.23 per cent to $15.68.
The best share categories were utilities and materials, which rose by 0.37 per cent and 0.25 per cent respectively.
Consumer staples had the biggest loss at 1.44 per cent.
Among individual stocks, airline Regional Express forecast a full-year loss of $15 million due to Victoria's latest coronavirus outbreak.
Also known as Rex, the airline had been on course for earnings to break-even but on Wednesday changed its estimate to a statutory loss before tax of $15 million.
Shares were down 0.4 per cent to $1.25.
Afterpay shares briefly rose higher than $100 but remain well down on the record price of $160.05.
Shares closed up 1.69 per cent to $98.84.
Electronics design software vendor Altium dived 7.5 per cent to $34.30.
Shares on Monday had gained more than 39 per cent after the company rejected a takeover offer from US software group Autodesk.
Miners were a rare bright spot on Wednesday.
BHP gained 0.6 per cent to $48.67, Fortescue climbed 1.03 per cent to $22.65, and Rio Tinto rose 0.52 per cent to $124.80.
A big improver in materials was Brickworks, which rose 11.32 per cent to $23.40.
The company revealed a huge jump in the value of its property trust.
Industrial property sales in western Sydney have boosted the trust's worth.
The big four banks were all lower by less than one per cent.
The Australian dollar was buying 77.50 US cents at 1728 AEST, higher from 77.46 US cents at Tuesday's close.
ON THE ASX
* The ASX200 closed lower by 22.4 points, or 0.31 per cent, to 7270.2 on Wednesday.
* The All Ordinaries closed down by 20.3 points, or 0.27 per cent, to 7522.
* At 1728 AEST, the SPI200 futures index was trading higher by one point, or 0.01 per cent, to 7276.
One Australian dollar buys:
* 77.50 US cents, from 77.46 cents on Tuesday
* 84.81 Japanese yen, from 84.76 yen
* 63.64 Euro cents, from 63.61 cents
* 54.67 British pence, from 54.75 pence
* 107.55 NZ cents, from 107.37 cents.