The S&P/ASX 200 dropped sharply in early trading, reaching a low of 5117 points near midday before closing 0.7% lower at 5130.

As investors continued to grapple with recent news of a slowdown in Chinese manufacturing and substantial overnight price falls for nickel and copper, anticipation ahead of an uncertain European Central Bank meeting was reflected in cautious trading.

Bloomberg reported today that ECB president Mario Draghi himself expressed doubts about the effectiveness of interest rate cuts expected to be announced at the meeting.

“Data released since the April rate-setting meeting have provided further evidence that more monetary action could be needed in the eurozone,” ING Belgium economist Carsten Brzeski told the news service.

“But as long as the transmission mechanism is not working, a rate cut could simply go up in smoke.”

Trading also coincided with the release of Deloitte’s March 2013 investment monitor which said the Australian economy was not ready to transition to a post-mining boom phase.

“Mining projects have been the star but mining investment will peak in the next 12 months, passing the baton to other elements of the investment landscape which are clearly not ready for it,” the report said.



“That’s a bit like having Usain Bolt lead out your relay team, passing off to Homer Simpson for the second leg.”

BHP Billiton lost 1.2% to $A31.79 and Rio Tinto fell 2% to close at $53.91.

Gold companies were mostly down as forecasts accumulated that the precious metal might record its first annual retreat since 2000.

Medusa Mining and St Barbara stood out with 9.1% and 7.5% losses to close at $2.78 and 55c respectively.

Papillon Resources also struggled with a 6.5% fall to 94c while Kingsgate Consolidated pitched a further 5.7% to $1.97.