A dovish tilt from the Reserve Bank of Australia and signs of new stimulus measures from China helped stem a wave of profit taking that swept the ASX on Tuesday.

The S&P/ASX 200 closed 30 points, or 0.4 per cent, lower at 8393 points, led by the banking and tech sectors, which ended 1.7 per cent and 4 per cent lower, respectively.

That followed similar losses on Wall Street, as traders took profits on tech stocks amid news that China had opened a probe into US chipmaker Nvidia in the latest sign of escalating trade tensions between the two countries.

Subsequently on the ASX, some of the strongest-performing stocks of the year were among the hardest hit. Pro Medicus was 9 per cent lower at $244.30, Megaport fell 5.4 per cent lower at $7.43 and WiseTech dropped 4.4 per cent to $125.60.

Partial recovery

The ASX 200 was down as much as 0.7 per cent at one stage, but made a partial recovery after the RBA left the cash rate on hold at 4.35 per cent, and in a surprisingly dovish tilt, removed language in its statement that referenced the risk of another rate rise. The central bank also said it was more confident in bringing inflation under control.

Commonwealth Bank economist Gareth Aird – the only Australian major bank to still forecast a rate cut as early as February – said the RBA’s language marked an “unambiguous shift in the dovish direction”.

“Put simply, the statement today read like the board is now confident that the next move in interest rates will be down,” he said.

A 3.4 per cent rally for the mining sector helped to offset weakness in the banks and tech stocks after China’s politburo said it would embrace a “moderately loose” strategy for monetary policy next year.

The renewed signs of upcoming stimulus in China buoyed a raft of commodity prices including lithium, iron ore and gold, pushing miners to rank among the best performing on the ASX 200.

Mineral Resources was up 8.7 per cent to $37.19, Pilbara Minerals rose 6.5 per cent higher at $2.28 and Fortescue added 6.2 per cent higher at $20.45.

Stocks in focus

Elsewhere on the ASX, Perpetual sank 8.4 per cent to $20.07, after the fund manager revealed it could be hit with a tax bill of more than $500 million over the sale of assets to private equity giant KKR, putting the whole deal under threat.

IAG said it would defend itself against a class action brought to the Supreme Court of Victoria. The shares fell 1.7 per cent to $8.50.

Platinum Asset Management fell a further 2.2 per cent after the stock collapsed more than 14 per cent on Monday as a prospective takeover deal with Phil King’s Regal Partners fell apart.

And the federal court has approved a merger between Integral Diagnostics and Capitol Health, in a deal set to create a $1 billion diagnostics imaging group. Integral Diagnostics rose 1 per cent to $2.93 and Capitol Health added 2.7 per cent to 38¢.