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July 17 (Reuters) - Australian shares were flat on Monday, as weakness in financial institutions dragged on more upbeat material stocks while investors braced for a possible expansion in capital rules for banks amid mounting concerns over risky lending.
The S&P/ASX 200 index dithered on either side of flat but was up 2.08 points, or 0.04 percent, at 5,767.2 by 0311 GMT. The benchmark rose 0.5 percent on Friday.
Three of the 'Big Four' banks dragged most on the financial sector, falling 0.4 to 0.5 percent, followed by insurers Medibank Private Ltd and Insurance Australia Group .
"Financials are struggling to get into positive territory and investors will continue to look out for the APRA announcement on what's happening with the banks capital requirements," said Tony Farnham, an economist with Patersons Securities.
Local media is speculating the Australian Prudential Regulatory Authority (APRA) will announce new capital rules this week for major banks. The government is looking at expanding the powers of the country's prudential regulator to include non-bank lenders amid worry of financial stability in the economy.
Giving into pressure from regulators, major banks have cut back on home loans and institutional lending to real estate investors in recent months, giving non-bank lenders an opportunity to expand their loan books.
This development has stoked concerns as the country's sky-high household debt and accelerating property prices prevail while wage growth has been slow.
Financial stocks were also depressed by subdued rate hike prospects in the United States following weak retail sales data.
Telstra sagged 1.2 percent, on track for its fifth day in the red, on the prospects it may slash dividends. Investors are awaiting such a move as the telecom giant faces growing competition and a pressure on its earnings, according to the Australian Financial Review. [bit.ly/2vsrxy9 ]
Meanwhile, the materials sector led by diversified miner South32 Ltd rising more than 2.9 percent, provided some cheer.
Aluminium prices notched their best single-day rise on Friday while oil and copper prices remained upbeat.
Index heavyweights Rio Tinto and Fortescue Metals Group edged up as much as 1 percent and 2.5 percent, respectively.
New Zealand's benchmark S&P/NZX 50 index gained 0.4 percent, touching at one point its highest intraday level on record, led by industrial and healthcare sectors.
The country's net foreign liabilities are at their lowest as a percentage of gross domestic product since the late 1980's, making the country less vulnerable to shocks, according to the Reserve Bank of New Zealand Deputy Governor Geoff Bascand.
Retirement village operators Summerset Holdings and Metlife Care were the biggest gainers in the benchmark, up 2.3 percent and 1.8 percent. (Reporting by Hanna Paul; Additional Reporting by Urvashi Goenka; Editing by Jacqueline Wong)