SYDNEY May 7 (Reuters) - Australian stocks dropped 1 percent to a three-week low on Wednesday, with selling hitting a broad range of shares, as market confidence was by hit mounting worries about Ukraine and before the announcement of the federal budget next week.
The S&P/ASX 200 index was down 55.4 points at 5,426.0 as of 0217 GMT, having touched its lowest level since April 16. The benchmark had risen 0.4 percent on Tuesday.
"What's happening in Ukraine is a key issue ... The market is also reacting here in Australia to the outcome of the federal budget," said Martin Lakos, division director at Macquarie Private Wealth.
Traders were keeping an eye on developments in Ukraine and the heightened possibility of that country slipping into civil war, with supporters of Russia and of a united Ukraine accusing each other of tearing the country apart.
Meanwhile, Australia's coalition government next week will hand down its first budget since winning the election in September last year, and has already flagged a series of spending cuts.
Wall Street stocks also fell overnight, adding to investor anxiety that saw broad-based selling in stocks from banks to miners.
Commonwealth Bank of Australia lost 1 percent and Westpac Banking Corp fell 0.9 percent.
BHP Billiton Ltd dropped 1.1 percent and Rio Tinto Ltd shed 1.6 percent.
Miners have also come under pressure from an uncertain outlook for resources demand amid doubts over whether seasonal demand will pick up strongly with China's economy on shaky ground.
Ric Spooner, a market analyst at CMC Markets, said traders might be wary of building positions ahead of local employment data due on Thursday.
Shopping mall giant Westfield Group lost 1 percent after it said late on Tuesday it would improve the terms of its merger for shareholders of Westfield Retail Trust (WRT) by A$300 million. WRT edged up 0.2 percent.
Australian packaging group Amcor Ltd skidded 1 percent after announcing the acquisition of Indonesian flexible packaging company Bella prima Packaging for A$27 million.
New Zealand's benchmark NZX 50 index slipped 0.2 percent to 5,165.7. (Reporting by Maggie Lu Yueyang; Editing by Chris Gallagher)