The benchmark S&P/ASX 200 reversed gains of about 0.6 per cent shortly after the open to close only a handful of points higher at 5878.3.

Key to the afternoon turnaround was a sharp drop in Dalian iron ore futures, which dropped 4 per cent over the session. That caused shares in Fortescue Metals Group to slide 5.1 per cent, while Rio Tinto fell 0.7 per cent. BHP Billiton managed to add 0.4 per cent, buoyed by a solid bounce in crude oil prices.

Swept along were most of the big banks, which reversed early gains to end the day mixed. ANZ closed down 0.3 per cent, while Westpac was 0.1 per cent lower. The Commonwealth Bank gained 0.4 per cent, while NAB added 0.3 per cent.

The big banks have been heavily sold down in the beginning of May, and took a major tumble on Tuesday and Wednesday as news of a new government levy on bank liabilities caused investors to dump their financial stock.

But share prices in the big bank stocks have reacted "too aggressively" given the "mathematical reality of the levy", which is only expected to result in a 3 to 6 per cent hit to earnings per share hit, said ST Wong, the joint chief investment officer at Prime Value Asset Management.

But there might be other reasons behind the heavy bank sell-off of recent days.

"In Australia, the marginal buyer is always the offshore buyer," Mr Wong said. "Their key consideration is the Australian dollar. If they think it's going down, which it seems to be, they'd be selling down. The banks are very liquid, and so easy to sell."

The ASX 200's biggest loser was BT Investment Management, which dropped 5.9 per cent. Myer was also punished after its third-quarter trading update, in which it said same-store sales had slumped 2 per cent. It closed down 3.5 per cent.

The day's biggest winner was Graincorp, which is enjoying the proceeds of a bumper grain crop on the east coast. It closed at a three-year high of $9.88, up 8.3 per cent, after doubling its dividend off the back of a profit four times higher than last year.

Outside the top 200, Quintis shares dropped another 23.3 per cent, after the company admitted on Wednesday the board wasn't informed that it lost a key contract in December. It has shed more than half its value in the past week.

Stock Watch: BT Investment Management

Shares in BT Investment Management crumbled 5.6 per cent to $12.23 and was the worst performing company in the top 200 on Thursday, after the fund manager released its interim report. Investors shunned the stock after total half-year revenue and other income fell 12.4 per cent to $246.3 million. Net profit after tax increased 0.9 per cent to $78.9 million while average funds under management was up 10.1 per cent to $86.3 billion. Investors were largely concerned with the performance fee revenue which has slumped 62.6 per cent to $27.9 million. Most analysts have a "hold" rating on the fund manager, which even after Thursday's drop is trading well above the consensus analyst 12-month price target of $11.69.

Crude prices

Oil lifted above $US50 again, even as OPEC seems to be losing its ability to influence prices and a wave of new supply is hitting the market from Texas to Libya. But for some, there's never been a better time to buy. Despite last week's sell-off, the global oil market is rebalancing rapidly, said Jeffrey Currie, head of commodities research at Goldman Sachs. If OPEC extends its cuts into the second half - as the group has signalled - demand will significantly exceed production, according to the IEA's head of oil industry and markets Neil Atkinson.

Snap tumbles

Snap Inc's stock tumbled 21 per cent on Wednesday night after its Snapchat app added fewer users than projected in the first quarter, in what some say is a sign the company may have trouble expanding as Facebook copies its most popular features. In its debut earnings report after a March initial public offering, Snap revenue fell short of analysts' estimates. But the key concern was slowing growth. "All of these innovations that Facebook and Instagram are making could be undermining the growth of Snapchat," said Mark Mahaney, an analyst at RBC Capital Markets.

New Zealand cash rate

The Reserve Bank of New Zealand on Thursday held its overnight cash rate at a record low 1.75 per cent as expected and said the stance for monetary policy is neutral though it would adjust policy if new conditions warrant. "Developments since the February Monetary Policy Statement on balance are considered to be neutral for the stance of monetary policy," Governor Graeme Wheeler said in a statement. The Kiwi dollar slumped 1.5 per cent against the Aussie, its biggest drop in over a year as traders trimmed their odds of a 2017 rate hike from 35 per cent to 20 per cent.

Asian shares

Shares around the region mostly lifted higher, thanks to a rebound in oil, and some benchmark indexes traded near multi-year highs. Equities in New Zealand and South Korea led gains while Japan's Nikkei 225 Stock Average edged towards the 20,000 level. But Chinese shares resumed declines, with the Shanghai Composite heading for the lowest close since September 2016 amid scrutiny of regulatory intervention in the country's financial markets. Indian stocks reached fresh record highs.