Australia shares mired at 3-1/2 month lows, Fed meeting awaited

(Adds analysis, quotes, stocks on the move)

SYDNEY, Dec 16 (Reuters) - Australian shares fell 0.2 percent on Monday, languishing at 3-1/2 month lows, as investors awaited the U.S. Federal Reserve's policy meeting this week to see if decides to begin scaling back its stimulus programme.

The financial sector was the biggest drag on the main index, with Commonwealth Bank of Australia (Other OTC: CBAUF - news) slipping 0.3 percent and National Australia Bank falling 0.2 percent.

Investment bank Macquarie Group Ltd slid 5.8 percent after getting clearance to offload its A$1.3 billion stake in Sydney Airport (Frankfurt: MJS.F - news) . Its shares are now trading on a post-consolidation basis, meaning those who purchase the shares on the market will not have any entitlement to the Sydney Airport securities distribution.

The Australian market has taken a beating in recent weeks, having fallen some 400 points from a 5-1/2 year high of 5,457.3 hit on Oct (KOSDAQ: 039200.KQ - news) . 28.

Sentiment has been hit by profit forecast downgrades, General Motors (NYSE: GM - news) ' decision to halt production in Australia, and concern over possible Fed tapering as early as its Dec. 17-18 meeting.

The S&P/ASX 200 index fell 8.8 points to 5,089.6 by 0016 GMT. The benchmark last week shed 1.7 percent, its fourth consecutive week of losses, with analysts citing the falling Australian dollar as another reason why stocks are fizzling.

"This falling Australian dollar explains a lot of the ASX's reluctance to hold ground of late," Scott Schuberg, CEO at Rivkin Securities, said in a client note.

"It is a useful indicator of what pressure Australian stocks will be under from foreign investor selling, should they recognise a clear and continuing trend."

Miners BHP Billiton Ltd and Rio Tinto Ltd (Xetra: 855018 - news) fell 0.8 percent and 0.4 percent, respectively, after Dalian iron ore futures fell more than 2 percent on Friday.

Among gainers, Wesfarmers Ltd rose 0.5 percent after agreeing to sell its insurance underwriting businesses to Insurance Australia Group Ltd for A$1.85 billion.

Amcor Ltd climbed 1.7 percent to an all-time high of A$11.49 after the Federal Court of Australia approved its arrangement scheme for the demerger of Orora.

Qantas Airways Ltd, Australia's biggest airline, added 1.5 percent. Prime Minister Tony Abbott has backed calls from the airline to have restrictions, including limits on foreign ownership, eased as the carrier faces a record loss and increased competition, local media said.

New Zealand's benchmark NZX 50 index slipped 0.1 percent to 4,712.9. (Reporting by Thuy Ong; Editing by Chris Gallagher)