June 11, 2020 / 7:17 AM / a month ago

Australia shares drop most in six weeks on grim Fed forecast

* Australian benchmark snaps 7-session winning streak

* Energy stocks fall on weak oil prices

* NZ down for third straight session (Updates to close)

By Arpit Nayak

June 11 (Reuters) - Australian shares fell on Thursday by their most in six weeks, as a gloomy economic outlook from the U.S. Federal Reserve crushed hopes for a swift recovery from the coronavirus-induced slump.

The S&P/ASX 200 index fell 3.1% to 5,960.6 at the close of trade, snapping a seven-session winning streak.

The Fed forecast the U.S. economy would contract 6.5% this year. Fed Chair Jerome Powell emphasised the recovery would be a long road and that policy would have to be proactive with rates near zero out to 2022.

“The Fed’s statement will breathe realism into the market,” said Simon Herrmann, an equity analyst at Wise-Owl, adding that the market rally in recent weeks might have been too optimistic.

“Given where we are, that means we’ll probably need to go through a few weeks of falling prices to let the real-world economy catch up with the stock markets.”

Investor sentiment was also hit by rising diplomatic tensions between Australia and China after Australia called for an international inquiry into the source and spread of the coronavirus.

Heavyweight financials were the biggest drags on the benchmark, with the ‘Big Four’ banks shedding between 4.4% and 6.2%.

Woodside Petroleum and Santos led a 5.4% decline in the energy sub-index, as oil prices slipped on concerns of slow demand growth and record U.S. crude stockpiles.

A 5.3% surge in gold stocks capped losses in the metals and mining sub-index.

Gold prices rose to a one-week high overnight amid broader weakness in equities but eased slightly in Asian trading hours as investors booked profits.

Top gold miner Newcrest Mining climbed 5.7%, while Northern Star Resources finished 6.8% higher.

New Zealand’s benchmark S&P/NZX 50 index dropped 0.9% to 11,154.93, marking its third straight session of falls.

Local shares of lenders Westpac Banking Corp and Australia and New Zealand Banking Group fell 7.5% and 5.6%, respectively. (Reporting by Arpit Nayak in Bengaluru; Editing by Subhranshu Sahu)

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