MELBOURNE: Australian stocks fell 0.4 percent after data suggested a continuing contraction in the manufacturing sector in China, Australia's top export destination.
Top miner BHP Billiton fell 1.3 percent while Rio Tinto sank 1.5 percent.
The HSBC Flash China manufacturing purchasing managers' index (PMI) ticked up to 47.8 from August's nine-month low of 47.6 but remained well below the 50 mark that divides expansion from contraction.
"It's still soft," said Shane Oliver, head of investment strategy at AMP Capital Investment.
"The good news is it hasn't got any worse, the bad news is it's no better really. Statistically there's no change. It's telling us Chinese growth is not losing further momentum but recovery remains elusive."
"The market was already struggling before this was released," Oliver added.
The benchmark S&P/ASX 200 index was down 16 points to 4,402.3 by 0320 GMT. The index rose 0.5 percent to 4,418.36 on Wednesday, its highest close since May 3.
New Zealand's benchmark NZX 50 index rose 0.5 percent to 3,817.3 points.
New Zealand's economy grew better than expected in the second quarter, rising a seasonally adjusted 0.6 percent in the three months to June 30.
STOCKS ON THE MOVE:
Surfwear company Billabong International Ltd fell 7 percent to A$1.345 after one of its two suitors dropped out of the race.
Echo Entertainment Group Ltd fell 5 percent to A$3.895 after Southeast Asian gambling group Genting unexpectedly put up for sale almost half its near 10 percent stake in Echo.
New Zealand and Australian clothing and outdoor goods retailer Kathmandu Ltd rose 3.5 percent to NZ$1.76 after it said it expected improvement this year.
Fortescue Metals Group FMG.AX fell 3.4 percent to A$3.565. Fortescue reached a $715 million deal with US investment firm Leucadia National Corp to repay a loan, the latest move by the world's No. 4 iron ore producer to restructure its $11.7 billion debt load.