The local share market started higher but finished 0.7 per cent lower after a strong labour market report raised fears of more rate hikes next year.
The local share market has given up its early gains and finished in negative territory, rattled by an apparent gaffe by Joe Biden as well as a domestic jobs report that could help justify another rate hike next year.
The benchmark S&P/ASX200 index was up about 0.3 per cent in morning trading on Thursday, but finished 47.5 points lower, or 0.67 per cent, at 7058.4.
The broader All Ordinaries fell 47.2 points, or 0.65 per cent, to 7269.5.
The drop came after the Australian Bureau of Statistics reported that the economy added 55,000 jobs last month, more than double the 24,000 expected.
Unemployment did pick up marginally, but only to levels seen in July and August, at 3.7 per cent.
"Today's employment reading won't be what Michele Bullock wanted to see," eToro market analyst Josh Gilbert said.
While the reading doesn't tip the dial towards another rate hike next month, it does mean that the RBA will remain hawkish into next year, Mr Gilbert predicted.
IG Market analyst Tony Sycamore agreed, saying the RBA would need to see labour market and inflation data ease in the coming months to avoid having to raise rates in early 2024.
Despite interest rates rising by 4.25 percentage points in the past year and a half, Australia's unemployment rate is below where it was when the RBA kicked off its rate-hiking cycle, Mr Sycamore noted.
Markets were also rattled by an undiplomatic remark by US President Joe Biden, who called China's Xi Jinping a "dictator" hours after a carefully choreographed summit with his Chinese counterpart.
Mr Biden's off-the-cuff remark to a reporter as he was leaving a press conference was quickly denounced by Chinese state media and could unravel some of the progress made between the world's two leading powers.
Capital.com analyst Kyle Rodda said the comment sent Asian markets into a "mini-tailspin" and was a "stark reminder that geopolitical risks are never too far away from being a volatility driver."
Eight of the ASX's 11 sectors finished lower and three were higher.
The energy sector was the biggest loser, dropping 1.2 per cent as Brent crude fell to a one-week low of $US80 a barrel. Woodside fell 0.8 per cent and Santos dropped 1.9 per cent.
The Big Four banks were mixed, with ex-dividend ANZ dropping 3.3 per cent to $24.19, NAB falling 1.2 per cent to $27.75 and Westpac flat at $21.15, while CBA edged 0.1 per cent higher at $102.29.
AMP plunged 15.8 per cent to an all-time low of 85.5c as the wealth manager said it would invest $60 million in building a digital bank built specifically for sole traders and small businesses.
AMP chief executive Alexis George said the new offer would build on AMP Bank's strengths and address an under-served and growing market segment.
The heavyweight mining sector dropped 0.8 per cent, with BHP falling 0.6 per cent to $46.56, Rio Tinto adown 0.4 per cent to $125.17 and South32 dropping 1.9 per cent to $3.17.
Sonic Healthcare fell 4.2 per cent to $29.23 as the global pathology company announced at its annual general meeting plans to buy a Utah-based medical technology business, Pathology Watch, for $US130 million.
The Australian dollar was buying 64.81 US cents, from 65 US cents at Wednesday's ASX close.
ON THE ASX:
* The benchmark S&P/ASX200 index on Thursday finished 47.5 points higher at 7,057.4, a drop of 0.67 per cent.
* The broader All Ordinaries fell 47.2 points, or 0.65 per cent, at 7,269.5.
One Australian dollar buys:
* 64.81 US cents, from 65.00 US cents at Wednesday's ASX close
* 98.07 Japanese yen, from 97.95 Japanese yen
* 59.78 Euro cents, from 59.79 Euro cents
* 52.28 British pence, from 52.06 pence
* 108.26 NZ cents, from 108.94 NZ cents.