Profit-taking has deflated the rally that kicked in last week, although a new round of sanctions on Iran has not helped sentiment either.
There is also caution around the weekend meeting between China and the United States at the Group of 20 (G-20) summit.
It was no surprise that these factors helped push the Straits Times Index (STI) down 7.26 points, or 0.2 per cent, to 3,304.27 yesterday.
Trade clocked in at 1.15 billion shares worth $1.16 billion, with losers outpacing gainers 220 to 166. The STI had 14 of its 30 components ending in the red.
Elsewhere, Australia, China, Hong Kong, Japan and South Korea ended lower while Malaysia closed flat.
Observers noted a July rate cut in the US has already been priced in, and that the Osaka meeting should be viewed as a short-term market catalyst amid a global slowdown.
CMC Markets analyst Margaret Yang said: "The most likely outcome of the G-20 is another trade truce with no further tariffs implemented and no meaningful deal reached. But they'll keep talking."
Investors continued to pick up real estate investment trusts (Reits) in the light of possible US rate cuts but some dealers say that valuations are high. UBS Global Wealth Management joined the chorus yesterday, noting local Reits are "beginning to look overpriced".
CapitaLand Mall Trust saw considerable trading activity during the session, buoyed by news that the revamped Funan has secured 95 per cent take-up ahead of Friday's opening. It added 1.5 per cent to $2.64.
Financials extended Monday's dip. DBS lost 0.7 per cent to $25.60, OCBC Bank dipped 0.3 per cent to $11.25 and United Overseas Bank (UOB) fell 0.6 per cent to $25.70.
DBS Equity Research said valuations of OCBC and UOB "should be supported by strong capital levels and decent dividend yields amid a benign credit environment".
UOB is DBS Equity Research's sector pick, with a target price of $29.20. OCBC was downgraded to "hold" with a target price of $11.50.
Investors have been turning to the defensive telecommunications sector of late. Singtel was the benchmark index's most traded yesterday, adding 0.9 per cent to $3.48 with 41.8 million shares done. Netlink NBN Trust rose 1.7 per cent to 89 cents and StarHub gained 1.3 per cent to $1.55.
A Singapore Exchange report yesterday showed telcos were the top net buy sector in May, drawing institutional inflows of $135.8 million. In the year to June 21, the three telcos averaged a total return of 9 per cent.