(Adds analysis, quotes, stocks on the move)
SYDNEY, March 25 (Reuters) - Australian shares fell 0.6 percent on Tuesday morning after Wall Street declined on escalating tensions in Ukraine and as gold and oil stocks slumped on the back of a sharp drop in commodity prices.
Gold miners took a heavy beating as bullion prices tumbled about 2 percent as hedge funds sold the precious metal on bets that rising U.S. interest rates could spark a further retreat from last week's six-month high. [IDP:nL4N0MM00D]
Australia's top gold producer Newcrest Mining Ltd lost 4.4 percent, while OceanaGold Corp dived 9.2 percent.
The S&P/ASX 200 index shed 32.7 points to 5,314.2 by 0101 GMT. The benchmark added 0.2 percent on Monday on bargain hunting.
The benchmark touched a 5-1/2 year high of 5,462.3 on March 7 but has since drifted lower as the crisis in Ukraine and concerns over slowing growth in China, Australia's largest export market, soured investor sentiment.
"I think the main concern is China at the moment, the Chinese economy has given us a clear sign that it's slowing down, that's why the demand has been volatile," said Biyi Cheng, head of dealing for the Asia Pacific at City Index.
Monday's flash Markit/HSBC Purchasing Managers' Index showed activity in China's factories contracted again in March, falling to an eight-month low of 48.1 from February's reading of 48.5.
Brent crude oil fell on the lacklustre manufacturing report from China, the world's largest oil consumer. Australia's top oil and gas producer Woodside Petroleum Ltd fell 0.7 percent while Santos Ltd shed 1 percent.
The 'Big Four' banks were also down with National Australia Bank off 0.5 percent and Australia and New Zealand Banking Group 0.2 percent lower.
"All the 'Big Four' banks are at high levels," Cheng said, indicating the pull back was largely technically-driven.
"Recently we've had a group of clients building up short-selling positions on banking stocks."
TPG Telecom Group climbed 8 percent after touching all-time highs of A$6.35. The telecommunications and IT company reported healthy first half earnings and upgraded its guidance for the year. iiNet added 4.5 percent after analysts said TPG could make a move to buy the rival internet service provider.
Yancoal Australia Ltd tumbled 6 percent to all-time lows of A$0.545 as China's Yanzhou Coal Mining Co Ltd ditched a plan to buy out the minority shareholders of its Australian arm.
New Zealand's benchmark NZX 50 index slipped 0.1 percent to 5,112.8.
Reporting by Thuy Ong; Editing by Shri Navaratnam