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By Shivangi Lahiri

Sept 25 (Reuters) -Australian shares closed lower on Wednesday, as local banks declined amid caution over monetary easing despite inflation slowing in August.

The benchmark S&P/ASX 200 index .AXJO slipped 0.2%to 8,126.4 at closing. It had ended 0.1% lower on Tuesday.

Data on Wednesday showed Australia's inflation slowed to a three-year low in August, especially due to the government's electricity rebates.

However, traders remained cautious as the Reserve Bank of Australia (RBA) mentioned on Tuesday that it would look past the slowing headline inflation, pushing back any possibilities of a near-term rate cut.

"The focus from here will remain on the labor market. So unless there is an upside surprise in the unemployment rate on October 17, there is little chance for an RBA pivot," analysts at State Street Global Markets said.

"However, the RBA risks prolonged subpar growth by lagging global central banks."

Financials .AXFJ dropped 1.7% to their lowest in three weeks. Local miners .AXMM were the biggest gainers, rising 3.2%, rallying for the second consecutive day after China announced a slew of stimulus measures.

"Banks have had a stellar run in a rising and then stable rate environment, but earnings headwinds are coming from a rate cutting cycle. The massive outperformance of banks over resources this year has come to an end, it is time to switch," analysts at Sandstone Insights said.

The "Big Four" banks closed down between 0.8% and 2.7%.

Miners Rio Tinto RIO.AX and BHP Group BHP.AX both added 3.8%.

Fortescue FMG.AX gained 4.7% on signing a $2.8 billion partnership with German-Swiss equipment manufacturer Liebherr for one of the world's largest zero-emission mining fleets.

Technology stocks .AXIJ are set for a fifth straight month of gains, despite the sub-index closing 1.2% lower.

"Materials and IT sectors are the key and best-performing sectors over the last week and traders are in accumulation mode in these sectors, given they face supportive tailwinds," said Jessica Amir, market strategist at moomoo.

Meanwhile, New Zealand's benchmark S&P/NZX 50 index .NZ50 finished the day 0.6%lower at 12,224.53 points.

Reporting by Shivangi Lahiri in Bengaluru; Editing by Sumana Nandy

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