* Benchmark loses 3% for the week
* Mesoblast drops most in more than 4 years
* NZ bourse up for second consecutive week (Updates to close)
Oct 2 (Reuters) - Australian shares shed more than 1% on Friday, declining further from their modest losses initially in reaction to U.S. President Donald Trump testing positive for COVID-19, eclipsing any optimism stemming from easing of the local virus-led curbs.
President Trump tweeted he and the first lady Melania Trump had tested positive, sending the S&P 500 futures EScv1 and global markets lower in what could be a new wave of volatility ahead of the November presidential elections. MKTS/GLOB
"The Trump COVID-19 diagnosis is a strong negative for financial markets and will lead to a rotation into defensive positioning," said Jeffrey Halley, senior market analyst at OANDA.
Equity markets, especially pro-cyclical ones such as Australia, are expected to be outperformed by gold, the U.S. dollar, and the U.S. treasuries, he added.
The S&P/ASX 200 index .AXJO ended 1.4% lower at 5,791.5. For the week, it shed 2.9% — its worst weekly fall since late-April.
The Australian government said it will allow residents from New Zealand to enter the country for the first time in six months without having to quarantine in the coming weeks. week, investors will be looking at the Reserve Bank of Australia's cash rate decision, and the federal budget, which is likely to show a record deficit of around A$200 billion ($143.22 billion). miners .AXMM were the biggest drags on the index, losing more than 2%, with global iron ore mining giants BHP Group BHP.AX and Rio Tinto (LON:RIO) RIO.AX ending 3.2% and 1.9% lower, respectively.
Financials .AXFJ and healthcare stocks .AXHJ declined 1.3% and 1.7%.
Meanwhile, Mesoblast MSB.AX was the top percentage loser among the ASX 200 companies, ending 37.2% lower in its worst session since June 2016. Zealand's benchmark S&P/NZX 50 index .NZ50 edged up to finish at 11,822.84, ending its second straight week higher. ($1 = 1.3965 Australian dollars)