The share market weakened after investor confidence was dented by US President Donald Trump's sacking of his secretary of state.
The benchmark S&P/ASX200 index dropped 0.7 per cent to 5,935.3 points, with all sectors of the market losing ground, and Telstra among the worst performers.
Macquarie Private Wealth division director Martin Lakos said the latest departure from the US administration, Rex Tillerson, has given investors a shake.
"Rest assured there is absolutely no economic impact, what we are seeing is increased uncertainty which is probably the more significant outcome," Mr Lakos said.
After a good run for the US market since Mr Trump's election in 2016, volatility is now the new normal, he said.
"That level of complacency has been shattered and we are returning to more normal levels of volatility," Mr Lakos said.
The major lenders all fell, as hearings in the financial services royal commission continued, with National Australia Bank the worst performer, down 1.3 per cent.
Among other large stocks, Telstra dropped 2.6 per cent, Westfield shopping centre owner Scentre Group fell 1.8 per cent and CSL was one per cent weaker.
Fortescue Metals gained 1.7 per cent, Rio Tinto climbed 0.8 per cent, while BHP Billiton fell 0.1 per cent.
China's National Bureau of Statistics said industrial output - including steel production - has grown at a faster-than-expected pace since December.
BlueScope Steel shed 1.8 per cent, and gold miner Newcrest, which is still determining the potential hit to production from a failed tailings dam at its Cadia mine in NSW, dropped 1.1 per cent.
Energy stocks were weaker after oil prices fell, with Santos down 1.4 per cent and Woodside Petroluem down 0.3 per cent.
Data from the Australian Bureau of Statistics that showed commercial loans - including mortgages to investors - remained steady at $43 billion in January had little impact on local markets.
The Australian dollar was supported by the Chinese industrial data, which made up for some weakness earlier in the day following the news of Tillerson's sacking.
ON THE ASX:
* The benchmark S&P/ASX200 index was down 39.4 points, or 0.66 per cent, at 5,935.3 points
* The broader All Ordinaries index was down 34.5 points, or 0.57 per cent, at 6,042.6 points
* The SPI200 futures contract was down 29 points, or 0.49 per cent, at 5,939 points.
* National turnover was 3.9 billion securities traded worth $6.2 billion
CURRENCY SNAPSHOT AT 1700 AEDT:
One Australian dollar buys:
* 78.75 US cents, from 78.72 US cents on Tuesday
* 83.85 Japanese yen, from 84.06 yen
* 63.49 euro cents, from 63.86 euro cents
* 56.35 British pence, from 56.68 pence
* 107.40 NZ cents, from 107.53 NZ cents
The spot price of gold in Sydney at 1700 AEDT was $US1,328.40 per fine ounce, from $US1,320.08 per fine ounce on Tuesday.
BOND SNAPSHOT AT 1630 AEDT:
* CGS 4.50 per cent April 2020, 1.9856pct, from 2.0271pct on Tuesday
* CGS 4.75pct April 2027, 2.6963pct, from 2.7599pct
Sydney Futures Exchange prices:
* March 2018 10-year bond futures contract at 97.2675 (implying a yield of 2.7325pct), from 97.203 (2.797pct) on Tuesday
* March 2018 3-year bond futures contract at 97.915 (2.085pct), from 97.850 (2.150pct).
(*Bond market closes taken at 1630 AEDT previous local session; currency closes taken from 1700 AEDT previous local session)