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SYDNEY, June 18 (Reuters) - Australian shares fell 0.2 percent in volatile trade on Tuesday, as investors awaited the outcome of the U.S. Federal Reserve's monetary meeting and turned tentative before an options expiry date.
"On Thursday we have the index options expiry, a big expiry as it's the end of the quarter. I think that's why you're seeing a tentative market after the last few days," said Bell Potter Securities private client advisor Stuart Smith in Brisbane.
The Fed meets over Tuesday and Wednesday amid intense speculation over its massive bond-buying campaign, but most economists do not expect it to scale back purchases from the current $85 billion a month.
"We have to detect the tone of whether they're tapering off ... or not," Smith said.
Analysts fear that if the Fed tightens monetary policy too early, the U.S. economy could slip into recession, dragging global markets with it.
The S&P/ASX 200 index lost 11.5 points to 4,814.4, according to the latest data. The benchmark rose 0.7 percent on Monday.
The Australian index has suffered a sharp selloff in sympathy with a rout in global markets in recent sessions, driven by uncertainty over the Fed's stimulus measures, volatility in Japanese equities and slowing growth in China, Australia's major export market.
The Reserve Bank of Australia said in its June meeting minutes, published on Tuesday, that it saw scope for the Australian dollar to fall further.
"The bank feels there are downside risks to the currency if terms of trade decline, which in turn could have positive ramifications for the economy," IG chief market strategist Chris Weston said in a note.
The market lost about 40 points within an hour after the RBA minutes, but came off its intra-day low as offshore funds returned to bet on a weaker currency, brokers said.
"Once you got down to 4,770, you started to see offshore funds coming back into the market again," said James McGlew, executive director of corporate stockbroking at Argonaut in Perth.
"It's been targeted more so at our banks rather than the resources sector," he added.
Commonwealth Bank of Australia bounced back and ended nearly flat, adding two cents. The other three smaller peers all came off their lows, with National Australia Bank Ltd sliding 0.6 percent.
Global miners closed lower as copper prices dropped. BHP Billiton Ltd and Rio Tinto Ltd fell 0.3 percent and 0.2 percent respectively.
Defensives were also hit, with flagship telecommunications provider Telstra Ltd slipping 0.2 percent.
Qantas Airways Ltd dropped 2.1 percent as security screening staff at Perth airport's Qantas terminal started a fourth week of industrial action over a wage dispute.
Rare earth miner Lynas Corp Ltd fell 2.3 percent after the company said it intended to drop its defamation case against a Malaysian environmental group.
Rural services company Elders Ltd dived 22.2 percent after bidder Ruralco Holdings Ltd said it had formally withdrawn its offer to acquire Elders.
New Zealand's benchmark NZX 50 index added 0.3 percent or 14.5 points to 4,462.1.
Reporting by Maggie Lu Yueyang; Additional reporting by Michael Sin; Editing by Stephen Coates