After starting the session down as many as 54 points and staying in the red for most of the day, the benchmark S&P/ASX200 index moved into positive territory in the last 40 minutes of trading to finish Tuesday up 6.9 points, or 0.08 per cent, to 8,704.6.
The broader All Ordinaries gained 3.2 points, or 0.04 per cent, to 8,966.7.
IG market analyst Tony Sycamore said nerves ahead of Wednesday's Australian second-quarter consumer price index report contributed to the cautious session.
This, Mr Sycamore said, would be "the final determining factor as to whether the RBA cuts rates in August - bringing potential relief to Australia's mortgage holders - or elects to keep rates on hold, opting for short-term pain for long-term gain in the fight against inflation, which many think has already been won."
HSBC's chief Australia and New Zealand economist Paul Bloxham said the bank expects the readout would show the RBA's preferred inflation metric to print at 0.6 per cent quarter-on-quarter and 2.7 per cent year-on-year, which HSBC sees as allowing the RBA to trim rates in August.
But if trimmed mean inflation comes in at higher than that, an August rate cut would be less likely, Mr Bloxham said.
In the US, the Federal Reserve's rate-setting committee is widely expected to leave rates on hold when it announces its latest decision early on Thursday Australian time, but its commentary will be closely scrutinised for clues on the prospect of a rate cut in September.
The ASX's energy sector was the biggest gainer on Tuesday, rising 0.7 per cent as Santos rose 2.1 per cent to $7.91 and Woodside gained 1.6 per cent to $26.60.
Woodside's gains came after Australia's largest oil and gas producer announced it would assume operation of the offshore Bass Strait production assets it co-owns with ExxonMobil Australia.
Elsewhere in the sector, Viva Energy dropped 6.4 per cent to a seven-month low of $2.05 after the OTR and Reddy Express petrol station owner said a big drop in tobacco sales had led to a 10 per cent decline in overall convenience sales in the first half.
Uranium producers were down for a second day, with Paladin dropping 5.8 per cent, Deep Yellow retreating 5.2 per cent and Boss Energy falling another 5.5 per cent, on top of Monday's 44 per cent plunge following word of issues at its Honeymoon uranium mine in SA.
In the heavyweight mining sector, the iron ore giants were mixed.
Fortescue dipped 0.3 per cent to $18.08 as BHP rose 0.3 per cent to $40.42, while Rio Tinto was basically flat at $116.93.
In the financial sector, the big four banks were also varied. CBA dropped 0.4 per cent to $174.29 as NAB advanced 1.2 per cent to $38.20, while ANZ and Westpac were both basically flat at $30.32 and $33.19 respectively.
The Australian dollar had dropped to a fresh one-week low against its strengthening American counterpart, buying 65.25 US cents, from 65.50 US cents at 5pm on Monday.
Mr Sycamore said the greenback was gaining after recent trade deals struck by the US removed uncertainty and exhibited its economic and diplomatic leverage by extracting significant investment and concessions.
ON THE ASX:
* The benchmark S&P/ASX200 index on Tuesday rose 6.9 points, or 0.08 per cent, to 8,704.6
* The broader All Ordinaries gained 3.2 points, or 0.04 per cent, to 8,966.7
CURRENCY SNAPSHOT:
One Australian dollar buys:
* 65.25 US cents, from 65.50 US cents on Monday
* 96.69 Japanese yen, from 96.94 Japanese yen
* 56.35 euro cents, from 55.88 euro cents
* 48.88 British pence, from 48.79 British pence
* 109.32 NZ cents, from 109.17 NZ cents
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