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Core inflation shock dampens rate-cut bets

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AXJO falls below critical 9,000 points mark

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Financials fall 1.9%; real estate stocks down 1.7%

(Updates to close)

By Atharva Singh

Oct 29 (Reuters) - Australian shares closed at their

lowest level in two weeks on Wednesday as a spike in core

inflation dashed hopes of a near-term interest rate cut,

prompting a sell-off in banking and real estate stocks.

The S&P/ASX 200 index fell 0.96% to 8,926.20 points,

slipping below the key 9,000 mark for the first time since

October 15.

On Wednesday, data showed that core inflation surged in the

September quarter by the fastest in over two years, dampening

expectations of a rate cut next week and forcing markets to pare

back bets on the Reserve Bank of Australia's (RBA) broader

easing cycle.

Traders now expect an 8% chance of a quarter-point rate cut

on November 4, down from 40% before the data, while the odds of

a December reduction have dropped below 22% from 47% earlier.

All of Australia's 'Big Four' banks, along with Citi,

Goldman Sachs ( GS ), and Standard Chartered ( SCBFF ), expect the RBA to keep

its key interest rate steady at 3.60% this year.

Economists at top lender CBA abandoned their call

for one more rate cut next February and now expect the cash rate

to remain on hold for a prolonged period.

Among the major sectors, financials fell 1.9% after

two days of gains, with all of the 'Big Four' banks closing in

the red. Top lender National Australia Bank ( NAUBF ) lost 2.6%.

"Defensive assets have their valuations tied to the cash

rate as an alternative to bonds, so we are seeing those stocks

get sold off as expectations of a rate cut next week are now off

the table," said Luke Winchester, portfolio manager at

Merewether Capital.

Real estate stocks finished 1.7% lower, with sector

heavyweight Goodman Group ( GMGSF ) shedding 1.4%.

Healthcare extended losses to a second day, weighed

by a 4% drop in CSL .

New Zealand's benchmark S&P/NZX 50 index edged

marginally higher to close at 13,409.21 points.