News: XEJ Australia shares slump as bets rise on Sept Fed rate hike; NZ lower

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.

"Eric 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 (xjo) 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.

Oil 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 Ltd (BHP) and Rio Tinto Ltd (RIO) shed 3.5 percent and 2.1 percent respectively. Fortescue Metals (FMG) 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) was 4.2 percent lower and Northern Star Resources (NST) down 4 percent. [GOL/]

Energy stocks .AXEJ fell to their lowest in over two months as oil prices tumbled. Woodside Petroleum (WPL) and Oil Search (OSH) lost more than 3 percent. Santos Ltd (STO) 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) was among the big losers on the benchmark, down 4.4 percent, while accounting software developer Xero Ltd (XRO) lost the most at 4.5 percent lower.