Australian shares drop to 10-month low as traders gauge Middle East jitters

March 23 (Reuters) - Australian shares fell to a more than a 10-month low, with banks and heavyweight miners leading declines, as uncertainty over the Middle East conflict kept investors from making massive bets.

The S&P/ASX 200 index .AXJO was down 1.7% at 8,330.00 points, as of 0119 GMT, and dropped to its lowest point since May 15 earlier in the session. The benchmark closed 0.8% lower on Friday.

The index hit a record high of 9,202.90 points on February 26 and has since shed around 9.8%, putting it close to the 10% drop typically used to define a market correction.

Escalating the three‑week‑old conflict, Iran said on Sunday it would strike the energy and water systems of its Gulf neighbours if U.S. President Donald Trump carries out a threat to hit Iran's electricity grid within 48 hours.

The threat of retaliatory strikes on vital Gulf infrastructure has heightened fears of supply disruptions and broader regional instability, impacting the domestic stock market.

Australian miners .AXMM dropped nearly 4% to their lowest point since December 2, dragged lower by softer aluminium and copper prices. Additionally, weaker bullion prices also pressured the sub-index further. MET/L GOL/

Mining majors Rio Tinto RIO.AX and BHP Group BHP.AX lost as much as 2.6% and 2.8%, respectively, to their lowest levels since January 12.

Gold sub-index .AXGD dropped as much as 8.1% hit a six-month low.

Financials .AXFJ fell 1.3%, hitting a two-week low, as losses in the "Big Four" banks, down between 1.5% and 2.3%, dragged the sub-index lower.

Local tech stocks .AXIJ mirrored movements in their U.S. peers, losing as much as 3.3% to their lowest point since late October 2023. .N

Defying the trend, energy stocks .AXEJ gained as much as 0.9% to their highest level since early February 2024.

Major energy producers Santos STO.AX and Woodside Energy WDS.AX advanced 1.4% and 1.5%, respectively.

Locally, investors also await the February inflation data, due later in the week, to seek clarity on the central bank's interest rate policy.

Across the Tasman Sea, New Zealand's benchmark S&P/NZX 50 index .NZ50 fell 1.2% to 12,839.30 points.

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