The S&P/ASX200 fell 9.3 points on Tuesday, down 0.1 per cent, to 9,066.7, as the broader All Ordinaries dipped by 10.5 points, or 0.11 per cent, to 9,260.9.
Energy stocks outperformed the other sectors after renewed US-Iran fighting supported oil prices, stoking inflation fears and sending investors towards defensive utilities and health care stocks.
Santos, Viva and Ampol each surged more than 1.7 per cent.
Raw materials was the other segment to end the day higher, gaining 0.7 per cent as gold producers held their ground and copper prices inched towards record highs.
"The ASX kicked off the new month on a cautious footing, as rising bond yields, firmer oil prices and renewed rate-hike concerns tightened financial conditions and weighed on risk appetite," Vantage senior market analyst Hebe Chen told AAP.
Ahead of second quarter domestic economic figures due Wednesday, NAB and JP Morgan analysts have cut their growth forecasts to 0.2 per cent, while Goldman Sachs has tipped zero growth for the period.
"A softer result would add to evidence that the slowdown is becoming more entrenched, while persistent inflation remains the bigger concern by limiting the Reserve Bank's room to respond," Ms Chen said.
"Australia is not in textbook stagflation yet, but the ingredients are sitting increasingly close together, with growth slowing while inflation remains difficult to contain."
Consumer-facing stocks underperformed, with cyclicals down 1.8 per cent and staples 1.4 per cent in the red, as the household spending outlook darkened.
Financials resumed their downward trajectory after their two session rebound ran out of puff, with three of the big four banks trading lower.
The dip came as housing market concerns continued to mount and 10-year Australian bond yields hit 15-year highs.
Australia's property market was increasingly stuck in a traffic jam of its own making, Global X ETFs strategist Marc Jocum said.
"Falling prices, higher borrowing costs and policy uncertainty have left buyers and sellers in a holding pattern, with transaction activity slowing as the market waits for a clearer road ahead," he said.
Realestate.com.au owner REA Group fell more than four per cent after building approvals fell 3.6 per cent in August, which was less than feared.
In company news, Liontown shares jumped more than six per cent after flagging a farm-in deal for NEXT Lithium's Centenario lithium brine project in Argentina.
The Australian dollar is buying 71.64 US cents, up from 71.61 US cents on Monday at 5pm.
ON THE ASX:
* The S&P/ASX200 fell 9.3 points, or 0.1 per cent, to 9,066.7
* The broader All Ordinaries lost 10.5 points, or 0.11 per cent, to 9,260.9
One Australian dollar trades for:
* 71.64 US cents, from 71.61 US cents at 5pm AEST on Monday
* 114.60 Japanese yen, from 114.42 Japanese yen
* 61.73 euro cents, from 61.79 euro cents
* 52.90 British pence, from 52.87 pence
* 121.28 NZ cents, from 121.06 NZ cents
12°C