(Updates to close)
By Chris Thomas
Sept 21 (Reuters) - Australian shares closed at their lowest in more than seven months on Thursday, dragged by financial and material stocks, after the U.S. Federal Reserve suggested a third interest hike might be on the table in December despite subdued inflation.
As expected, the Fed kept interest rates unchanged on Wednesday and said it would begin reducing its balance sheet in October, but also signalled it expects to deliver one more rate hike by the end of the year.
“I think that’s quite negative in the context that the market was pricing in a relatively weak U.S. dollar as they assumed the Fed won’t be doing much,” said Mathan Somasundaram, a market portfolio strategist with Blue Ocean Equities. “There’s a fair amount of pressure on the market - as interest rates go up, asset prices have to come down.”
However, Reserve Bank of Australia’s Governor Philip Lowe has said that rising global interest rates would have no “automatic implications” for the country and that policymakers were well aware of the impact of rate hikes on heavily indebted households.
The S&P/ASX 200 index fell 0.9 percent, or 53.691 points to 5,655.4 at the close of trade, its worst finish since Feb. 8. The benchmark fell 0.1 percent on Wednesday.
Material stocks weighed the most on the index, with BHP Billiton and gold miner Newcrest Mining Ltd closing at over four-week lows.
Among financial stocks, Commonwealth Bank of Australia settled 0.3 percent lower after rising as much as 0.8 percent in morning trade. The lender said it would sell its life insurance unit to Hong Kong-based AIA Group for $3.1 billion.
Others banks in the “Big Four” fell in a range of 0.4 percent to 0.9 percent.
New Zealand’s benchmark S&P/NZX 50 index fell 0.3 percent or 23.83 points lower to finish the session at 7,795.41.
Construction firm Fletcher Building dominated the losses on the index, falling 4.8 percent to close at its lowest in over eight weeks.
Growth in New Zealand’s construction sector slipped 1.1 percent in the June quarter, pulled down by labour shortages and rising costs.
Meanwhile, in the run-up to the country’s hotly contested general elections, the ruling National Party regained a wide lead over the opposition Labour Party in an opinion poll on Wednesday, after party leaders went head-to-head in the final debate before Saturday’s election.
Reporting by Chris Thomas in Bengaluru; Additional reporting by Aditya Soni; Editing by Jacqueline Wong