* Materials, resources weigh on Aussie shares
* NZ down on consumer staples
* Market eyes U.S. Fed policy meeting
By Christina Martin
March 20 (Reuters) - Australian shares dropped on Tuesday, as concerns that U.S. President Donald Trump could impose additional protectionist trade measures weighed on commodity stocks.
The S&P/ASX 200 index fell 0.5 percent, or 29.6 points, to 5,929.8 by 0038 GMT, with caution ahead of new Federal Reserve Chairman Jerome Powell’s first policy meeting starting later in the day also hurting sentiment.
This mirrored a broader loss across Asian stocks and a sharp overnight slump on the Wall Street. U.S. stocks look set to lose more ground when New York reopens, amid expectations the Fed would raise rates.
Losses in Australia stocks were led by the material sector that fell as much as 2 percent, with index heavyweights BHP Billiton and Rio Tinto Ltd losing as much as 2.8 percent and 2.1 percent, respectively.
On Monday, base metal and oil prices slipped, while Chinese iron ore prices fell 4.5 percent in their biggest daily drop in almost 10 months.
“The markets are assuming that there will be more (U.S.) tariffs and they will be targeted towards China,” said Mathan Somasundaram, market portfolio strategist, Blue Ocean Equities.
“That’s quite negative for commodities, and given that we don’t have a yield premium in Australia to the U.S., when you start to see weaker commodity prices, the Aussie dollar will fall, and that means resources and banks will underperform.”
Australia, a producer of basic commodities used in the world supply chain, would have much to lose should U.S. protectionism lead to tit-for-tat reprisals globally.
Among other sectors, healthcare stocks fell, with CSL Ltd down up to 2 percent, its worst in over five weeks.
Financial stocks in Australia erased early losses, rising as much as 0.3 percent. The ‘Big Four’ banks gained between 0.1 percent and 0.6 percent.
Somasundaram, however, said that the “banks, with the Royal Commission, will remain weak, and given that the inquiry will drag on for at least a year, they will be subdued”.
“Their biggest problem is what’s happened in cross selling, so they’ll divest all their non-core assets to reduce that risk, but I don’t think that’s going to get them out of regulatory risk. There will be more risks coming to the banking sector.”
He was referring to an ongoing inquiry, a Royal Commission, into the country’s scandal-ridden banking sector.
Meanwhile, New Zealand’s benchmark S&P/NZX 50 index inched down 0.1 percent, or 9.89 points, at 8,482.23.
Consumer staple and utility stocks weighed on the index.
“A2 Milk is a highly volatile stock so it can react on any particular day quite aggressively, which is probably making the consumer staples index seem distorted,” said Grant Williamson, director of Christchurch-based broker Hamilton Hindin Greene.
A2 Milk was the biggest drag, edging down 2 percent. (Reporting by Christina Martin in Bengaluru; Editing by Himani Sarkar)