Despite a modest push into positive territory in early trade, the index slumped in the lead-up to the afternoon rate decision. The S&P/ASX 200 ended 0.8 per cent, or 46.9 points, lower at 5540.5, while the All Ordinaries fell 0.9 per cent, or 48 points, to 5622.1.

Financial markets were pricing in a 75 per cent chance of a 25 basis point cut by the Reserve Bank of Australia, which delivered, sending the official cash rate to a historic low 1.5 per cent.

Australian government bonds rallied ahead of the decision, with the yield on the 10-year bond sliding below 1.85 per cent for the first time.

Citi director of equities sales Karen Jorritsma said the muted reaction of the index and the swift recovery of the Australian dollar after a snap fall after the announcement showed the cut had been expected by the market. Interest rates in negative territory in other parts of the world meant Australian interest rates still looked relatively attractive at 1.5 per cent, which might be working against the RBA, she said. 

Slippery slope for oil stocks

All sectors ended the session in the red, with energy stocks weighing heaviest on the index, down 3.2 per cent following an overnight tumble in the oil price on fears of an expanding glut, particularly in the United States. Woodside Petroleum dropped 2.2 per cent while Santos fell 5.8 per cent.

The best performing stocks included the defensive non-cyclicals, including Amcor and CSL, while gold miners benefited from the risk-off sentiment in the market.

Seven West Media's full year results, which foreshadowed a difficult 2017 for its advertising revenue, dragged on the share prices of fellow media players, including Nine Entertainment.

"The comments around the ad market decline or deterioration is not helpful, that's obviously why they're all getting dragged," Ms Jorritsma said.

The day's best performing stock was Credit Corp Group, with the debt collecting agency reporting a 20 per cent jump in its net profit after tax to $45.9 million. The stock hit a record high during trade.

Stock watch: Myer Holdings

Shares in the department store chain have improved steadily since July, and Goldman Sachs and Credit Suisse have raised their price targets on the stock while maintaining a neutral rating. The stock has also been lifted by improved mood in the consumer discretionary sector more broadly, which has risen more than 9 per cent since the Brexit sell-off in June. Credit Suisse analyst Grant Saligari sees more upside ahead for Myer's earnings, noting the retailer's new strategy is showing signs of improvement in its key performance indicators, and the unseasonably warm start to the winter season has been compensated for by a mid-winter cold snap. 

What moved the market

Interest rates

The Reserve Bank of Australia delivered a 25 basis point cut, dropping the official cash rate to a record low 1.5 per cent. Last week's subdued inflation read and an "appreciating" currency proved decisive in the cut. Governor Glenn Stevens said "prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy". But its effect on markets was shortlived, with the ASX resuming its downtrend after a brief lift and the Australian dollar recovering from a slip below $US75¢.

Crude oil

Sharemarkets around the region moved lower after oil prices in the US capitulated into a bear market on Monday night. WTI crude slipped below $US40 a barrel for the first time since April, while the benchmark Brent crude oil price fell 3.2 per cent to $US42.14 a barrel. The energy sector was the hardest hit in local trade, following weakness by oil and gas peers on Wall Street. Driving the weakness in oil prices, which sent US prices to their worst monthly loss in a year in July, are fears of an expanding supply glut as the rig count grows in the US rose.   

ABS data

Data from the Australian Bureau of Statistics added colour to an already soft picture of the Australian economy in June. Building approvals for the construction of new homes fell 2.9 per cent, worse than the consensus expectations of a 0.5 per cent lift. Meanwhile, Australia's trade deficit ballooned to $3.1 billion from May's $2.2 billion, worse than the expected contraction to $2 billion. National Australia Bank economists noted lower gold exports and stronger consumption imports drove the expansion. 

Seven West Media

Shares in the media conglomerate tumbled on the release of its full-year earnings on Tuesday. The company returned to the black in the 2016 financial year, reported a net profit of $184.3 million in the 12 months to June 30, but said higher costs associated with its Olympic Games and AFL coverage as well as softer advertising conditions would cause earnings to fall 15-20 per cent in FY2017. It shares closed down 18.4 per cent to 84.5¢, while fellow media stocks including Nine Entertainment fell in sympathy.