* Financials lower following interim Royal Commission report
* 'Big Four' banks all in the red
* Labour day holiday in New South Wales, South Australia and the Australian Capital Territory
By Nikhil Nainan
Oct 1 (Reuters) - Financial stocks dragged Australian shares lower on Monday, rocked by scathing findings in an interim report into the sector, despite initially brushing aside the document's impact.
Financials .AXFJ lost 1.3 percent, pulling the S&P/ASX 200 index .AXJO down 0.6 percent, or 36.9 points to 6,170.7 by 0200 GMT.
In almost 60 days of public hearings, the powerful Royal Commission inquiry heard evidence of bribery, fraud, fee-gouging and board-level deception across the industry, prompting many calls for prosecutions.
Investors initially shrugged off the findings on Friday, with the S&P/ASX 200 rising 0.4 percent when the report made no immediate recommendations for any legal action or reform.
Commissioner Kenneth Hayne's report was otherwise brutal in its assessment of the industry's ethical standards and governance, while also criticising regulators' efforts to police behaviour.
"I do not think prosecution is going to weigh the banks so much," said Dale Raynes, associate Director at CPS Capital.
"If the Royal Commission inhibits the way in which they can make money from the consumer, that will be viewed as a negative."
The 'Big Four' banks were all in the red, with Westpac Banking Corp WBC.AX and Australia and New Zealand Banking ANZ.AX falling the most, down 1.7 percent and 1.2 percent.
A final report is due in February, which could recommend major regulatory reform for banks, financial advisers, pension funds and insurers, as well as civil and criminal prosecutions.
Elsewhere, mining stocks .AXMM edged lower as investors faced a lack of guidance, with key resources market China on a week-long holiday.
"The miners will probably drift .. and will be trading probably on low volume with a lack of direction coming out of China." said Raynes.
Global miners BHP BHP.AX edged lower while Rio Tinto (LON:RIO) RIO.AX fell 0.6 percent.
Rio, alongside its joint venture partners, said it will invest about $1.55 billion to sustain production capacity at two iron ore projects in Western Australia, while it is in talks to sell its controlling stake in Namibia's Rossing uranium to China National Nuclear Corporation, according to media reports.
The moves come as Rio has sells off what it considers non-core assets, focusing instead on core commodities such as iron ore. Zealand's S&P/NZX 50 index .NZ50 fell 0.4 percent to 9,316.33, with local listings of Westpac WBC.NZ and ANZ ANZ.NZ lower.
Index heavyweight Air New Zealand AIR.NZ fell 1.8 percent.
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