Australian shares weighed by miners, banks; NZ stocks steady

(Adds analysis, quotes, stocks on the move)

By Cecile Lefort and Naomi Tajitsu

SYDNEY/WELLINGTON, April 17 (Reuters) - Australian shares fell 1 percent on Friday as falling iron ore prices encouraged investors to sell mining stocks, putting the index on track for hefty weekly losses.

The S&P/ASX 200 index dropped 61.2 points to 5886.2 by 03:54 GMT. The benchmark had risen 0.7 percent on Thursday and was set to end the week 1.4 percent lower. It has been unable to break a key psychological level of 6,000 points.

The mining sector led losses, with volatile Fortescue Metals (Dusseldorf: FVJ.DU - news) off 5 percent as investors opted to book profits following Thursday's jump.

BHP Billiton (NYSE: BBL - news) and Rio Tinto (Xetra: 855018 - news) also slipped between 1.2 and 2 percent as iron ore prices remained under pressure around $50 a tonne.

Financials were on the defensive with the "Big Four" banks - Commonwealth Bank of Australia (Other OTC: CBAUF - news) , Westpac Banking Corp , ANZ Banking Group and National Australia Bank - all off around 1 percent.

"It's due to a combination of some profit taking and repricing of the Reserve Bank of Australia's interest rate cut in May," said Ben Le Brun, market analyst at OptionsXpress.

Indeed, an upbeat local employment report on Thursday led markets to cut the odds for an easing by RBA in the next couple of months.

Swap markets are giving a 60 percent chance of the RBA cutting its policy rate from 2.25 percent to 2.0 percent in May, down from 76 percent earlier in the week.

The energy sector was among the very few outperformers, defying a drop in oil prices. Engineering group WorleyParsons soared 12 percent while Karoon Gas gained 2.7 percent.

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New Zealand's benchmark NZX50 index was largely flat at 5,876.49 in early trade, as gains in industrial shares offset losses in materials- and energy-related shares.

Auckland International Airport rose 1.3 percent to NZ$62, closing in on a lifetime high of NZ$4.69 hit earlier in the week as an expansion in long-haul flights operated by Air New Zealand was seen boosting the country's largest airport.

Restaurant Brands (Frankfurt: 0R6.F - news) climbed 1.44 percent to a lifetime high of NZ$4.25, extending gains a day after the operator of KFC, Carl's Jr. and other fast-food outlets reported a jump in full-year profit.

Fuel retailer Z Energy fell 2.1 percent to NZ$5.13 after a rise to a lifetime high of NZ$5.31 on Thursday prompted investors to book profits on the company's latest rally, while Fletcher Building (NZSE: FBU.NZ - news) slipped 0.47 percent. (Editing by Simon Cameron-Moore)