Fresh Sino-U.S. trade tensions and caution ahead of a U.S. Federal Reserve policy decision later in the day also dampened appetite for riskier assets.

The S&P/ASX 200 index closed down 0.5% or 32.5 points at 6,812.60, after firming 0.3% to an all-time closing high on Tuesday.

The benchmark rose 2.9% in July, its seventh straight monthly gain.

Banks fell 0.8%, with the biggest lender Commonwealth Bank of Australia slipping 1.3% and Westpac Banking Corp retreating 1.2%.

Australian shares of British lender CYBG PLC sank 13.4% to an all-time low following a reported dip in mortgage loans and shrinking net interest margins.

Meanwhile, a trade threat from U.S. President Donald Trump to China also cast a pall on broader market sentiment.

The warning came as officials from both sides meet in Shanghai for the first round of talks after the world's biggest economies agreed to a tariff ceasefire at a G20 summit last month.

Construction stocks saw significant declines after sector bellwether Adelaide Brighton Ltd <ABC.AX > flagged weaker annual earning and scrapped its interim dividend.

The cement manufacturer slumped about 18% and was the worst performer on the Australian benchmark. Its peers CSR Ltd  and Boral Ltd fell 6.3% and 8%, respectively.

However, a rally in oil prices supported energy stocks  for a ninth consecutive session. The sub-index rose 1.7% this month.

Oil Search Ltd rose 0.4% and Caltex Australia Ltd  added 1.5%.

New Zealand's benchmark S&P/NZX 50 index closed down 0.2% at 10,857.75.