The S&P/ASX200 had fallen 3.9 points by midday on Thursday, to be down 0.04 per cent, at 8,947.9, as the broader All Ordinaries lost 13.6 points, or 0.15 per cent, to 7,151.1.
The local bourse had its best day in a year on Wednesday as investors welcomed a truce between the US and Iran to facilitate peace talks, but the fragile ceasefire is being tested, IG market analyst Tony Sycamore said.
"Only a trickle of vessels managed to pass through the Strait of Hormuz before Iranian state media claimed the critical waterway had been closed again—a report the White House was quick to deny," he said.
"Throw in reports of continued attacks from both sides and ongoing Israeli strikes in Lebanon, and it's clear that tensions remain very close to the surface."
ASX-listed energy stocks rebounded 2.3 per cent on Thursday, tracking oil prices, after getting hammered in the previous session.
Woodside led the charge with a 3.3 per cent advance while Santos and most coal producers also improved, but uranium stocks fell behind.
Refinery operators Ampol and Viva Energy each lifted by more than three per cent each, and after Ampol lodged a revised offer to the Australian Competition and Consumer Commission to ease concerns over its proposed takeover of EG Australia.
Australia's heavily-weighted raw materials sector was again under selling pressure to fade 0.9 per cent, as gold producers and mega miners BHP, Rio Tinto and Fortescue handed back some of the previous session's gains.
Gold itself eased to $US4,712 an ounce, still hanging on to most of April's rebound.
"March was the weakest month for gold since June 2013, a move driven by de-leveraging and liquidity dynamics, not fundamentals," a World Gold Council spokesman said.
"Looking forward, there are some green shoots for gold to re-establish its positive trend but short-term risks remain."
Shares in copper miner Sandfire Resources tumbled almost four per cent after flagging its full-year production would likely come in at the lower end of its guidance range due to heavy rainfall.
Packaging provider Orora trailed the top-200, tanking more than 17 per cent after significantly downgrading its forecast earnings due to disruptions from the Middle East conflict.
Banks offered the bourse a ballast, with NAB leading the big four higher for a second session, as the financials segment rose 0.7 per cent.
Bendigo and Adelaide Bank shares rocketed nine per cent higher to $11.40 after announcing strategic partnerships with Infosys and Genpact to bolster digital innovation and risk management.
IT stocks and consumer discretionary companies tumbled as the confidence behind Wednesday's move turned to trepidation.
Airlines were under renewed pressure as conflict in the Middle East continued, with Qantas and Virgin Australia shares slipping 2.2 per cent and 3.9 per cent respectively.
The Australian dollar was buying 70.35 US cents, down from 70.70 US cents on Wednesday at 5pm as risk sentiment faded.
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