By Shashwat Pradhan and Rushil Dutta
Sept 12 (Reuters) - Australian shares slumped on Monday, dragged down by financials and materials, as investors were rattled by talk that Federal Reserve might hike U.S. interest rates next week.
Boston Fed President Eric Rosengren said on Friday that gradual interest rate increases might be in order with the U.S. economy at full employment and that low interest rates were increasing the chance of an overheated economy. Rosengren is a noted dove and when he came out and spoke about raising interest rates, he set the tone for the U.S. markets... the Asian markets followed suit," said Tony Farnham, an economist with Patersons Securities.
The S&P/ASX 200 index .AXJO fell 120.58 points, or 2.3 percent, to 5,218.6 by 0241 GMT, its lowest since July.
The Bank of Japan is considering ways to steepen the Japanese yield curve, according to sources, while media reports speculating that central banks are running short of fresh stimulus measures slackened risk appetite globally. MKTS/GLOB
Locally, Reserve Bank of Australia Assistant Governor Chris Kent is due to give a speech on Tuesday and there will be jobs data on Thursday. prices in Asia extended Friday's 4 percent fall after rig count showed increasing oil drilling activity in the United States, indicating that producers can operate profitably around current levels. O/R
Basic materials and energy stocks slid on the back of a strong dollar. .DXY
Mining giants BHP Billiton (LON:BLT) Ltd BHP.AX and Rio Tinto (LON:RIO) Ltd RIO.AX shed 3.5 percent and 2.1 percent respectively. Fortescue Metals FMG.AX was down 3.3 percent.
Gold stocks .AXGD were among the biggest losers in the sector after spot gold slipped 0.2 percent by 0228 GMT. Newcrest Mining NCM.AX was 4.2 percent lower and Northern Star Resources NST.AX down 4 percent. GOL/
Energy stocks .AXEJ fell to their lowest in over two months as oil prices tumbled. Woodside Petroleum WPL.AX and Oil Search OSH.AX lost more than 3 percent. Santos Ltd STO.AX fell 5 percent to its lowest in five months.
The "Big Four" banks declined between 1.4 percent to 2.3 percent.
New Zealand's benchmark S&P/NZX 50 index .NZ50 , which lost nearly 1 percent on Friday, fell 2.6 percent, or 195.07 points to its lowest in over a month at 7,273.53.
Financials, utilities and industrials dragged the index down.
Air New Zealand Ltd AIR.NZ was among the big losers on the benchmark, down 4.4 percent, while accounting software developer Xero Ltd XRO.NZ lost the most at 4.5 percent lower.
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