[SYDNEY] Australian shares fell to their lowest level in seven weeks on Thursday as a renewed fall in iron ore prices weighed on mining shares, while uncertainty about next week's interest rate decision kept banks under pressure.

The benchmark S&P/ASX 200 index was down 1.4 per cent, or 82.3 points, at 5,754.3 by 0314 GMT.

It fell 1.8 per cent on Wednesday in its biggest one-day fall since December 2014. It has lost around 2.3 per cent on the month.

"A couple of days ago we were pushing for the 6,000 level. Now we're seeing a fairly decent reversal," said Chris Weston, strategist at IG in Melbourne. "Valuations have got to a stage where we needed to see fresh inspiration from around the world. We need to see global growth pushing up. We need to see earnings actually looking to go up."

Instead, data overnight showed US economic growth nearly stalled in the first quarter and the Federal Reserve downgraded its view of the US economy.

Mining shares were among the big losers after a recent rally in iron ore prices came to an abrupt halt. Fortescue Metals fell 8.2 per cent, while Mineral Resources slid 3.6 per cent.

The big four banks also suffered another session of steep declines, led by a 3.0 per cent fall in Westpac.

Investors appeared to be taking profits in the sector amid high uncertainty about whether the Reserve Bank of Australia will ease again.

Debt markets imply a 50-50 chance of a cut at the May 5 meeting, down from as high as 68 per cent earlier this month.

In contrast, New Zealand's benchmark NZX50 index edged up 0.3 per cent, or 17.6 points, to 5,758.5 drawing support from consumer- and construction-related shares.

Earlier in the day, the Reserve Bank of New Zealand said it was open to cutting interest rates if domestic demand weakens and inflation pressures fall.

Spark rose 1.9 per cent, boosted after the country's biggest telecommunications provider announced it was selling off more non-vital assets, while casino operator SkyCity Entertainment rose 2.4 per cent.

Xero slumped 3.3 per cent to a two-month low of NZ$19.97 as investors continue to dump the online accounting software developer after it announced a growing full-year loss last week.

Dairy Co-operative Fonterra's share trading fund fell 1.50 per cent after it cut its farmgate milk price again, citing sluggish global demand which has kept international dairy prices weak.

Construction materials maker Fletcher Building edged up 0.5 per cent, while outdoorwear maker Kathmandu climbed 2.1 per cent.

REUTERS