After a choppy session either side of break-even, the S&P/ASX200 finished 10.1 points lower, down 0.12 per cent, to 8,531.2, as the broader All Ordinaries lost 13.2 points, or 0.15 per cent, to 8,757.9.
The index has traded within a 59-point range since Israel launched air strikes against Iran on Friday, and uncertainty has continued to reign after US President Donald Trump called for the surrender of Iran, elevating fears of a US intervention in the conflict.
"We're just in a holding pattern at the moment in terms of the overall index," IG Markets analyst Tony Sycamore said.
"Markets are very much just waiting to see what happens in the Middle East."
Eight of 11 sectors made gains, but a 1.6 per cent slip in materials stocks - which account for almost a fifth of the top-200's value - weighed on the major indexes.
The move came as Citi downgraded its 12-month iron ore price forecast to $US90 a tonne, sending futures to nine-month lows of $US94.05 a tonne and dragging on large cap miners Fortescue (-4.0 per cent), BHP (-1.2 per cent) and Rio Tinto (-1.1 per cent).
Gold continued to consolidate near $US3,400 ($A5,225) an ounce, but local miners generally traded lower on Wednesday following UBS downgrades of three key players.
UBS cut its price targets for Evolution (-3.6 per cent) and Northern Star (-2.0 per cent), while upgrading its target for Newmont Corporation to help it rise 0.6 per cent to $89.85.
The financial sector managed to snap a five-day losing streak, but not by much as it eked a 0.06 per cent gain with help from CBA, up 0.6 per cent and the only big four bank to close higher.
Some of the profits taken on financials after the sector hit a new peak last week were likely making their way into energy stocks, which have surged more than 10 per cent since the air strikes began on Friday, Mr Sycamore said.
Oil prices are hovering at multi-month highs, with Brent crude futures trading at $US74.85 a barrel.
Australia's IT sector was the best performer of the day, up 1.1 per cent, tracking with strength in WiseTech, Technology One and Xero.
The US Federal Reserve is expected to keep the US federal funds rate on hold overnight, but investors will be watching closely to see if the recent escalation in the Middle East could prompt a dovish pivot in the central bank's rhetoric.
Such a shift could leave the door open to future rate cuts, but it would likely depend on magnitude and duration of oil price elevation, which could threaten recently tempered inflation.
The Australian dollar is trading at the upper end of its recent range with the greenback, buying 65.07 US cents, down from 65.38 on Tuesday at 5pm.
ON THE ASX:
* The benchmark S&P/ASX200 index finished Wednesday 10.1 points lower, or down 0.12 per cent, to 8,531.2
* The broader All Ordinaries gained 13.2 points, or 0.15 per cent, to 8,757.9
CURRENCY SNAPSHOT:
One Australian dollar buys:
* 65.07 US cents, from 65.38 US cents on Tuesday at 5pm
* 94.30 Japanese yen, from 94.75 Japanese yen
* 56.53 Euro cents, from 56.56 Euro cents
* 48.33 British pence, from 48.21 pence
* 107.84 NZ cents, from 107.76 NZ cents
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