Australian stocks declined one per cent in thin trade after a muted reaction to the latest move to solve Europe's debt crisis took the shine off hopes for a Christmas rally.
Global equities posted a muted performance after initial optimism that a scramble by banks to secure debt from the European Central Bank faded as it seemed lenders would keep the money for themselves.
Dealers said volumes on the ASX were expected to stay low until the end of the year as investors square their accounts over the holiday period.
"All the American funds balance their books on December 31 so the likelihood of them doing anything major before then is small," BBY institutional dealer Stewart Palmer said.
At 10.30 AEDT today the benchmark S&P/ASX200 index was down 48.7 points, or 1.2 per cent, at 4,090.8, while the broader All Ordinaries index lost 46.5 points, or 1.1 per cent, to 4,143.7.
On the ASX 24, the March 2012 share price index futures contract was down 34 points at 4,077, with 9,050 contracts traded.
Retailers' woes continued after outdoor clothing and equipment retailer Kathmandu said its sales for the Christmas period so far had not met expectations and first-half earnings were likely to be lower than a year ago.
Kathmandu slumped 38 cents, or 23 per cent, at the open to hit a one-year low of $1.27.
The consumer discretionary sector shed 1.3 per cent, continuing the downward trend that has wiped more than 6 per cent off the industry since December 5 as a string of high-street names, including JB Hi-Fi and Billabong, have given warnings over falling sales.
David Jones lost 2.4 per cent to $2.48, Myer shed 2.8 per cent to $2.05 while Billabong slumped 4.4 per cent to $1.865.
Mr Palmer said that this Saturday - Christmas eve - will be the real day of reckoning for the local retail sector.
"This is going to be the billion-and-a-half dollar Saturday," he said.
"Some of the specialty retailers are certainly doing it tough - look at Billabong - but it will all depend on this little run up."
Shares in OneSteel slumped 3.5 cents, or 5.2 per cent, to $6.45 after the company said it will writedown $150 million in the value of its LiteSteel Technologies business because of weak residential construction activity.
Stocks were down across the board with the exception of the telecoms sector, traditionally seen as a more defensive investment in uncertain times. Telstra shares added one cent, or 0.3 per cent, to $3.30, one of the 17 stocks to gain among the top 200.
Energy companies, however, found some support from a rise in the oil price after the biggest drop in US inventories in a decade saw crude push higher overnight.
Woodside lost only 0.3 per cent to $30.61 while Santos fell 1.7 per cent to $12.29.
The resources sector lost 1.2 per cent, with BHP Billiton down 0.9 per cent at $34.80 and Rio Tinto down 0.9 per cent at $61.20.
