Australia shares log worst day in 3 weeks as banks slump ahead of inflation data

Updates to close

By Kumar Tanishk

Jan 6 (Reuters) - Australian shares logged their weakest session in three weeks on Tuesday, as losses in major banks outweighed gains in miners and attention turned to upcoming inflation data that could shape monetary policy.

The S&P/ASX 200 .AXJO fell 0.5% to close at 8,682.80 points, its biggest one-day drop since Dec. 15. Volumes stayed below the 30-day average of 646 million shares.

Financials .AXFJ lost 1.8% to a near three weeks low, marking their sharpest daily fall since mid-November last year

Three of the four biggest banks dropped between 2% and 2.4%, while Commonwealth Bank of Australia CBA.AX fell 3% for its worst session in nearly eight weeks.

Banks advanced rapidly over the past two years due to high interest rates, but stretched valuations and growth prospects in other sectors have prompted investors to diversify their portfolios.

Miners .AXMM jumped 2.1% to a record close on stronger commodity prices. BHP BHP.AX touched a near two-year high, while Rio Tinto RIO.AX set a fresh peak.

BlueScope Steel BSL.AX surged over 20% to a more than 17-year high after billionaire Kerry Stokes led an $8.8 billion takeover bid with U.S.-based Steel Dynamics STLD.O.

Investors are now focused on November consumer price data due Wednesday, expected to show annual inflation slightly below the prior month.

A recent pickup in inflation led the central bank to rule out further rate cuts, pushing markets to price about a 33% chance of a February rate hike. 0#AUDIRPR

“If the market starts pricing in rate increases, the ASX is likely to see more differentiated performance across sectors rather than a broad rally,” said Marc Jocum, senior product and investment strategist at Global X ETFs Australia.

He added that higher-rate expectations could cap gains in banks and weigh on earnings if credit growth slows and cost pressures persist.

In New Zealand, the S&P/NZX 50 .NZ50 rose 0.6% to 13,663.58, its highest close in nearly eight weeks.

(Reporting by Kumar Tanishk in Bengaluru; Editing by Nivedita Bhattacharjee )

((Tanishk.Kumar@thomsonreuters.com; X: @thatstanishk http://www.x.com/thatstanishk;))