Australian equities log worst week since mid-April as Fed caution drags banks

*

ASX200 logs worst week since mid-April

*

Banks slump; RBA meeting minutes due next week

*

NZ50 snaps two-day losing streak

(Updates to market close)

By Nikita Maria Jino and Roushni Nair

Dec 20 (Reuters) - Banks dragged Australian shares lower on Friday and to their worst week since mid-April, as investors remained cautious after the U.S. Federal Reserve signalled fewer interest rate cuts in 2025.

The S&P/ASX 200 index dropped for a second straight session, losing 1.2% to 8,067 points, the lowest since mid-September, down nearly 3% this week.

Following the Fed's rate cut and scaled-back projections for 2025, investors lowered their expectations of Reserve Bank of Australia (RBA) rate cuts in 2025. The odds of a February RBA cut are now down to 58.7% from 70% two days ago.

The minutes of the RBA's latest policy meeting are due on Dec. 24.

Meanwhile, a closely watched U.S. inflation gauge - the Core Personal Consumption Expenditures - for November is due later in the day.

In Sydney, financials, accounting for more than a quarter of the S&P/ASX 200 index, plummeted 2.4% to a one-month low, with the Commonwealth Bank of Australia (CBAUF) and Westpac shedding 3.7% and 1.2%, respectively.

The sub-index has suffered a 5.8% decline so far this month and is on track to log its worst month since September 2022.

While investors remain keen on banks for their compensation in terms of capital growth and total returns, the stretchiness of their valuation has limited the idea of "putting new money to work," Chris Weston, head of research at Pepperstone Brokerage, said, attributing the day's losses to profit-taking.

Miners logged losses for the eighth straight session to end 0.4% lower on declining iron ore prices.

Sector majors BHP and Rio Tinto lost 0.2% and 0.6%, respectively.

New Zealand's benchmark S&P/NZX 50 index snapped a two-day losing streak to end 1.2% higher at 12,904.11 points.

The Reserve Bank of New Zealand will meet in February and traders expect a 50-basis-points rate cut (96.2% probability) following the country's sink into recession in the third quarter. (Reporting by Nikita Maria Jino and Roushni Nair in Bengaluru; Editing by Sumana Nandy)