(Updates to close)
By Nikhil Nainan
Oct 2 (Reuters) - Australian shares closed at their lowest in more than three months on Tuesday as financial stocks extended losses following a scathing Royal Commission interim report on the scandal-hit sector.
The S&P/ASX 200 index .AXJO fell 0.8 percent to close the session at 6,126.2 points, after dropping 0.6 percent on Monday.
The financial sub-index .AXFJ lost 1 percent, with the Big Four banks among the biggest drags, led by Commonwealth Bank of Australia CBA.AX , which fell 1.2 percent.
Mathan Somasundaram, a Blue Ocean Equities market portfolio strategist, said the Royal Commission report will start to have a waning effect after the country's Treasurer on Monday called on any new measures taken against the banks to not hurt the economy or lead to tighter lending. instead, he stated that "cost of borrowing is going up globally, and I think nearly 40 pct of our banks' funding comes from overseas."
Australia's central bank, as widely expected, held rates for a 26th straight month, reinforcing bets that its policy stance will not change for an extended period. costs are going up, margins are shrinking. It's a tough place to make money. So the banks will struggle and there is always going to be regulatory concern hanging over them."
Wealth manager AMP Ltd AMP.AX , which has been one of the worst hit financial institutions amid the damaging revelations of the inquiry, fell 2.9 percent.
Mining stocks were mostly lower, with Rio Tinto (LON:RIO) falling 0.7 percent. But global miner BHP BHP.AX bucked the trend, edging up 0.3 percent.
Gold stocks .AXGD dropped 1.1 percent, with Alkane Resources ALK.AX the biggest percentage loser, and heavyweights St Barbara SBM.AX and Resolute Mining RSG.AX closing 2.6 percent and 2.3 percent, respectively.
New Zealand's benchmark S&P/NZX 50 index .NZ50 closed flat at 9,326.59.
A private think-tank survey showed that New Zealand business confidence sank to a nine-year low in the third quarter as concerns over government policy and labour costs dampened sentiment. 1.5 percent loss from index heavyweight Air New Zealand AIR.NZ offset a 1.3 percent gain by Spark New Zealand SPK.NZ , while Sky Network Television SKT.NZ added 1.4 percent.