INVESTORS dumped commodity stocks yesterday and switched into high-yield shares such as Telstra, which climbed to a three-year high.

Heavy falls overnight on overseas markets had set the scene for an ugly Australian session. Speculation that Greece would be forced out of the European Union sent European stocks down 2 per cent and more. Wall Street was not hit so hard but the Dow Jones, the S&P 500 and the Nasdaq all finished 1 per cent lower.

Australian stocks opened weakly and were soon down 45 points, or 1 per cent. From there, however, they edged up to take the benchmark to a closing loss of 30.7 points, or 0.7 per cent, at 4266.3.

Fears centred on the outlook for commodity prices and growth stocks. BHP Billiton led the way down, falling to a three-year intraday low of $33.46, and closing at $33.86, for a loss of 60¢, or 1.7 per cent.

Telstra, the once-lacklustre telco, had its best day in three years, jumping as much as 11¢ to 3.75 and closing 7¢ higher at $3.71.

Divergence between sectors was evident in the final figures. The resources sub-index dropped 2 per cent while telecommunications stocks jumped 1.8 per cent and the utilities sector put on 1.2 per cent.

''There is obviously an appetite for stocks that pay

a dividend yield,'' said Macquarie Private Wealth's head of research, Riccardo Briganti. ''But it feels to me this isn't a typical riskoff - it's something more.''

Mr Briganti said investors' concerns about weakness in China, not to mention the struggles of the European economy was not dashing appetite for equities across the board. ''There is still appetite for equities but

not for those areas that have any sort of international exposure or leverage to the cycle.''

In another sign that investors were altering their expectations for the market, the banking sub-index fell only 0.4 per cent, despite credit ratings agency Moody's downgrading

26 Italian banks overnight.

Mr Briganti said that if investors' focus had been solely on Europe's banking troubles, they would have sold local banks down more.

Arab Bank Australia treasury dealer David Scutt said the shift in investor behaviour also reflected the early stages of the retirement of baby boomers. As they took the first steps towards retirement, their attitude towards risk in the market had changed, he said.

''People getting close to retirement are getting completely disenchanted with the way stocks have performed over the past three years,'' he said.

Wariness about losses had made investors of that age more selective about their holdings, he said. ''The thing we need to realise in this world is that we have got ageing people in all the major Western economies.''

Until recently, they could depend on rising equities and home prices for a more comfortable retirement but that had changed, he said.

The dollar rose back above parity as the sharemarket was closing, and finished at US100.02¢.