After starting Monday in the green, the benchmark S&P/ASX200 index finished down 38.3 points, or 0.54 per cent, at 7,004.
The broader All Ordinaries fell 37.2 points, or 0.51 per cent, to 7,206.9.
The local bourse was coming off its worst week of losses since September and continued its negative run after China's latest consumer price index figure came in at 0.2 per cent.
"This reading is just one of many economic readings from China in recent months to show that the economic recovery is faltering, with a mountain of evidence now in place for officials to roll out further stimulus measures," eToro market analyst Josh Gilbert said.
While most global economies, including Australia, are battling rampant inflation well above central bank target ranges, China is at real risk of disinflation.
As consumers and businesses hold back on spending in expectation prices will fall further, the prospect of a price spiral becomes more real, says Mr Gilbert.
But there was cause for optimism amongst the gloom, with Chinese authorities seemingly bringing their regulatory crackdown on tech to an end.
"The market has reacted well as the huge cloud of uncertainty that has been hanging over Chinese tech names for a prolonged period appears to now be finally dissipating," Mr Gilbert said.
IT stocks were the only official ASX sector to finish up, edging 0.2 per cent higher.
Accounting software company Xero rose 0.9 per cent and financial services software provider IRESS grew 1.4 per cent.
The big miners were a significant weight on the index, with the three largest companies dragging it 12.7 points lower.
BHP and Rio Tinto dropped 1.1 per cent and Fortescue fell 2 per cent, following down iron ore futures.
South32 was the worst out of the miners, plunging 3 per cent.
Goldminers fared better, with Bellevue up 5.1 per cent, Silver Lake climbing 3.3 per cent and Regis Resources 2.8 per cent higher.
Consumer staples were the worst performing sector, one per cent lower on average, with Woolworths sliding 1.1 per cent.
The Big Four banks finished only slightly worse off. CBA fell 0.2 per cent, while Westpac, ANZ and NAB ended 0.1 per cent lower.
Ardent Leisure shot up 13.5 per cent to 50.5c after announcing trading for the last half was 30 per cent higher than the prior period, indicating the Dreamworld owner's COVID-19 rollercoaster ride has come to an end.
Mr Gilbert says investors will keep their eyes on US inflation data to be released on Wednesday.
"After a week of economic news that left investors digesting higher-for-longer rates, an inflation surprise this week could help reverse those expectations," he said.
If the figures are in line with economist expectations of 3 per cent for headline inflation and 5 per cent for core, it may not be enough to convince the Federal Reserve to stop hiking later this month but could prompt it to dial back expectations on terminal rates, he said.
The Australian dollar was up against the greenback, buying 66.57 US cents, from 66.34 at Friday's ASX close.
ON THE ASX:
* The benchmark S&P/ASX200 index finished Monday down 38.3 points, or 0.54 per cent, at 7,004.
* The broader All Ordinaries fell 37.2 points, or 0.51 per cent, to 7,206.9.
CURRENCY SNAPSHOT:
One Australian dollar buys:
* 66.57 US cents, from 66.34 US cents at Friday's ASX close
* 95.01 Japanese yen, from 95.22 Japanese yen
* 60.79 Euro cents, from 60.92 Euro cents
* 51.99 British pence, from 52.07 pence
* 107.75 NZ cents, from 107.65 NZ cents.
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