* Shares hit lowest level since Feb 2014
* Set for worst monthly performance since 2008 GFC
* 191 shares down, 6 up and 3 unchanged (Adds analysis, quotes, stocks on the move)
By Swati Pandey and Naomi Tajitsu
SYDNEY/WELLINGTON, Aug 24 (Reuters) - Australian shares fell 2.6 percent on Monday to their lowest level in 1-1/2 years on Monday as fears of a sharp economic slowdown in China triggered a fresh wave of selling in global equity markets.
By 0159 GMT, the S&P/ASX 200 index .AXJO had tumbled 2.6 percent, or 135.6 points, to 5,080.1 points, the lowest level since February 2014. It also marked the steepest percentage drop since May 2012.
The benchmark is on track for its worst month since the 2008 global financial crisis, having lost 10.6 percent so far in August.
China is Australia's No. 1 trading partner, and a surfeit of grim indicators in the world's second-largest economy has forced investors across the globe to dump stocks.
Fears of a China-led global economic slowdown drove Wall Street to its steepest one-day drop in nearly four years on Friday and left the Dow industrials more than 10 percent below a May record.
"The Chinese investment-led growth game is over... whilst the US struggles to see signs of inflation despite five years of zero interest rates," said Mark Lennox, senior private adviser at HC Securities.
All sectors were in the red on Monday with financials and resources shares leading the fall. The "Big Four" banks slumped with Westpac WBC.AX down 3.5 percent while ANZ ANZ.AX , CBA CBA.AX and NAB NAB.AX down about 2.7 percent each.
Major miners BHP Billiton (LONDON:BLT) BHP.AX and Rio Tinto (LONDON:RIO) RIO.AX both fell about 4 percent. Fortescue plunged 10 percent after annual profit dropped nearly 90 percent.
Steel maker Bluescope BSL.AX was among the rare bright spots on the index, up about 10 percent after it swung to full-year profit.
"The question is - is it just a normal correction or whether this is something deeper," said Julia Lee, equities analyst at Bell Direct.
New Zealand's benchmark NZX50 index .NZ50 fell 2 percent to 5,751.19, its weakest since mid-January.
Industrials led the fall, with Auckland Airport falling 3.8 percent to a seven-week low as the country's largest airport said that its growth prospects could be impacted by disruptions in global markets.
Chorus fell 3.6 percent to a 6 1/2-month low of NZ$2.65 after the telecommunications network operator reported a 38.5 percent fall in full-year profit.
Concerns about weaker global markets pounded export- and tourism-related shares, with freight transporter Mainfreight falling 2.4 percent to a 13-month low, while Air New Zealand slid 1.9 percent.
The index's biggest loser was cloud software maker Xero which fell 6 percent to its lowest level since mid-2013.