(Updates to close)
* RBA says Q2 employment may fall 15% vs earlier 20% estimate
* Aussie financial stocks hit highest level since March 12
* NZ stocks fall after three-day winning run
By Shashwat Awasthi
May 28 (Reuters) - Australian shares hit a two-and-a-half-month high on Thursday, with financial stocks powering the gains, after the country's central bank said the economic downturn due to the coronavirus crisis would likely be less severe than initially feared.
The benchmark S&P/ASX 200 .AXJO closed 1.3% higher at 5,851.1, hovering near its strongest level since March 11. A sub-index of financial firms .AXFJ advanced 3.1% and was on track for its best week.
Financial stocks have rallied globally this week as countries reopen for business and investors buy into the sector, which was among the hardest hit by the pandemic and has so far lagged a recovery in broader markets.
Analysts at RBC Capital Markets also attributed the surge to short-covering, and said future moves would partly depend on whether investors believe the economic fallout will be milder than expected.
Reserve Bank of Australia (RBA) Governor Philip Lowe pointed to the country's success in curbing the spread of the pandemic and said employment in the June quarter may have fallen less than an earlier estimate. comments, along with optimism over countries easing restrictions and potential stimulus measures, spurred hopes of a quicker-than-expected recovery, even as tensions between the United States and China over a new Hong Kong security law escalated. monetary and fiscal landscape across the world suggests that galactic levels of easing and stimulus are still at the top of the agenda of governments and central banks," OANDA analyst Jeffrey Halley said.
"In this context, it isn't so surprising that the global recovery trade seen across financial markets has acquired such powerful momentum."
New Zealand's S&P/NZX 50 .NZ50 bourse dropped 1.7% to 10,856.69 after three straight sessions of gains.
The country's employment suffered a record plunge in April, while a survey showed outlook for business sentiment was improving "painfully slowly".