Australian shares retreated on Tuesday, dragged down by...

Australian shares retreated on Tuesday, dragged down by financial stocks, as investors awaited the Reserve Bank of Australia's October policy meeting for some impetus.

The S&P/ASX 200 index (xjo) ticked lower by 20.81 points, or 0.4 percent, to 5,457.7 by 0010 GMT.

Australia's central bank is widely expected to hold its cash rate at a record low of 1.5 percent at its monthly policy meeting on Tuesday, a Reuters poll of economists found on Friday.

"Markets are very much cautious ahead of the monthly policy meeting," said James McGlew, executive director of corporate stockbroking at Argonaut.

Sentiment was also affected by stronger-than-expected U.S. manufacturing data for September that boosted expectations that the Federal Reserve would raise interest rates by December.[MKTS/GLOB]

Traders are now pricing for a 62 percent chance of a U.S. hike in December, and an 11 percent chance of a rate increase in November, according to CME Group's FedWatch Tool.

"There is no question that we are staring down a move upwards in rates in the U.S.," McGlew added.

Financials were the biggest drag on the index, accounting for more than half of the losses, with all four of the country's big banks in the red.

Bank CEOs are set to be questioned over three days this week by an Australian parliamentary committee that could propose measures to limit the dominance of the major lenders, including imposing a new levy.

Australian gas pipeline giant APA Group (APA) fell as much as 3.5 percent to touch a two-week low.

Miner Iluka Resources (ILU) was among the biggest losers in the benchmark, tumbling more than 3 percent.

Coal rail hauler Aurizon Holdings (AZJ) dropped 1.4 percent while property company Goodman Group (GMG) slipped 1.6 percent.

Sydney Airport Holdings (SYD) extended losses into a third-straight session, declining 2.3 percent to touch a near two-week low.

Among gainers, global miner Rio Tinto (RIO) rose a further 0.7 percent to touch a five-month high. Chinese iron ore imports rose in September, according to Reuters data, as its steelmakers ramped up output in the face of tensions about the country's steel exports.

Australian shares of London-based asset manager Henderson Group (HGG) soared as much as 14.1 percent, posting its biggest intra-day percentage rise in more than 7 years, after the firm agreed to buy U.S. rival Janus Capital in a $6 billion deal.

New Zealand's benchmark S&P/NZX 50 index (nz50) snapped four sessions of gains to dip 0.3 pct, or 24.48 points, to 7,348.01.

Utilities, materials and financials accounted for most of the losses on the benchmark.

NZX Ltd (NZX) was the top percentage loser, falling as much as 5.7 percent to record its biggest intra-day percentage fall in more than four years, after it announced that its CEO will step down.

Power generation company Meridian Energy Ltd (MEL) sagged 1.9 percent while Contact Energy (CEN) shed 1.2 percent.