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Australia shares drop to 6-mth lows as weak AUD, iron ore take toll

* ASX 200 loses 1.1 percent in broad sell-off

* 21 shares higher, 167 shares lower, 11 shares unchanged

* Resource sector resumes fall on iron ore supply glut (Adds analysis, quotes, stocks on the move)

By Thuy Ong and Naomi Tajitsu

SYDNEY/WELLINGTON, Sept 26 (Reuters) - Australian shares stumbled 1.1 percent to six-month lows on Friday, as the combination of a weak Aussie dollar, retreating iron ore prices and a slump on Wall Street triggered a broad selloff.

The pressure on the market was especially acute from a continued tumble in the price of iron ore , Australia's major foreign exchange earner. It fell below $80 a tonne this week for the first time since September 2009 and is on track for its biggest-ever annual drop amid a deep supply glut.

That dented the basic materials index down 1.7 percent as BHP Billiton Ltd dropped 1.4 percent, while rival Rio Tinto Ltd tumbled 1.6 percent.

U.S. stocks ended with sharp losses overnight, as each of the major indexes fell more than one percent and the S&P broke below a key support level.

The S&P/ASX 200 index tumbled 58.1 points to 5,324.1 by 0241 GMT. The benchmark is set to drop 2 percent for the week, which would be its fifth consecutive week of losses.

Industrial stocks also took a beating, falling 1.2 percent, as foreign investors pulled funds on the back of a weak Australian dollar.

Leighton Holdings Ltd declined 1.4 percent to hover at July lows of A$20.21, while Sydney Airport Holdings Ltd slipped 1.1 percent to A$4.22, its lowest since early August.

"I think once the Aussie dollar starts to stabilise, you'll see that foreign investment flow will be a little bit more concrete," said Savanth Sebastian, equities economist at Commonwealth Securities in Sydney.

"It's just that real movement in the currency that is driving foreign flows out."

The Australian dollar stabilised a little to push up 0.3 percent at $0.88, but remained around February lows, hit by broad U.S. dollar gains on the view the Federal Reserve will hike rates sooner-than-expected.

Gold rebounded sharply from a nine-month low touched earlier in the session, as the slide in U.S. equities drove safe-haven demand for the bullion. This helped to contain the broader market's losses as Australia's top gold producer Newcrest Mining Ltd climbed 2.5 percent.

The benchmark has erased all of its year-to-date gains, partly weighed by iron ore woes. The benchmark is 0.5 percent lower for the year.

Among financials, Australia's biggest bank by market capitalisation, Commonwealth Bank of Australia (Other OTC: CBAUF - news) lost 0.9 percent to A$75.93, a drop of more than 9 percent from its July 31 peak of A$83.92.

New Zealand's benchmark NZX50 index fell 29.45 points to 5,248.41, stepping further away from an all-time high of 5,289.48 hit on Thursday, as domestic equities tracked a slide in global share markets.

Xero fell 2.8 percent to $NZ20.50 after the accounting software developer's decision this week to extend a free service to facilitate Australian firms switching from its Australian rival MYOB highlighted fierce competition in Xero's largest market.

Kathmandu fell 1.8 percent to NZ$3.21, retreating from a two-week high of NZ$3.27 hit the previous day on hopes the worst was over for the outdoor apparel maker. (Editing by Shri Navaratnam)