* Drop in blue chips sends market lower
* Most sectors trading lower for third consecutive session
* Australian consumer sentiment improves modestly, retail stocks mixed (Adds analysis, quotes, stocks on the move)
By Thuy Ong and Gyles Beckford
SYDNEY/WELLINGTON, July 9 Australian shares fell 0.9 percent on Wednesday to lose further ground from this week's one-month high, with big-name stocks stumbling lower after a sell-off on Wall Street overnight.
Among blue-chip banking stocks, Australia and New Zealand Banking Group dropped 1.2 percent, while Westpac Banking Corp, Australia's second biggest bank by market value, dipped 0.8 percent. Elsewhere top-tier miner BHP Billiton Ltd lost 0.9 percent.
Among the top 20 stocks on the ASX 200, Australia's biggest telecommunications provider, Telstra Corporation Ltd, fell 0.5 percent.
U.S. stocks fell in a broad sell-off overnight, dropping for the second straight session and driving the Dow below 17,000 as investors turned cautious before the start of earnings season.
The S&P/ASX 200 index had tumbled 51.8 points to 5,459.1 by 0208 GMT, heading for its third consecutive losing session.
The benchmark hit a near-six-year peak of 5,554.5 on April 29, but has mostly shuffled sideways since then as investors turned cautious over geopolitical tensions in Iraq and Ukraine.
"I think the market is going to take stock while we wait for earnings season to come through, so not much will be happening until the results do come out," said Douglas Loh, head of equities at Acorn Capital.
A measure of Australian consumer sentiment improved modestly in July as worries about family finances eased, a survey showed on Wednesday, though the depressing impact of an unpopular federal budget continued to linger.
Closely tied to consumer sentiment, retailers were mixed. Department store operator Myer Holdings Ltd was flat, while discount retailer The Reject Shop Ltd added 0.4 percent.
Navitas Ltd, a provider of pre-university programmes, tumbled 32.5 percent to A$4.77, its lowest since February 2013, after revealing it would be losing a long-term contract with Macquarie University.
Yellow Brick Road Holdings Ltd gained 3.4 percent to a six-year high of A$0.78 after acquiring Resi Mortgage Corporation for A$36 million. The company also said it had secured firm commitments to raise A$42 million via private placements.
Shares in 3P Learning Ltd made their debut at A$2.39, dropping 4.4 percent below their issue price of A$2.50.
New Zealand shares followed the overseas lead with the benchmark NZX-50 index down 28.9 points or 0.6 percent at 5,137.12, a one-week low.
The biggest company, Fletcher Building Ltd, was down 1.3 percent at NZ$8.88, while software company Xero Ltd fell 2.8 percent to NZ$25.28.
The index of the top 10 companies fell 1.2 percent.
In contrast, mid-cap stocks traded with a firmer tone, notably jewellery retailer Michael Hill Ltd, which was 3.1 percent higher at NZ$1.34 after a positive sales report earlier in the week. (Reporting by Thuy Ong; Editing by Alan Raybould)