Australian shares recorded their worst session since mid-June on Wednesday after red-hot U.S. inflation data fuelled bets for aggressive interest rate hikes by the Federal Reserve, while investors waited for Australia's jobless rate later in the week.

The S&P/ASX 200 index ended 2.6% lower at 6,828.60 points, snapping four sessions of gains. Asian stocks also slumped after the inflation reading triggered a selloff on Wall Street on Tuesday.

The U.S. Labor Department's consumer price index unexpectedly rose in August and underlying inflation accelerated, bolstering the Fed to deliver a third 75 basis points rate hike next week to tame runaway inflation.

"The aggressive rhetoric displayed by the Fed will definitely flow through to the RBA's (Reserve Bank of Australia) stance on policy tightening," said Azeem Sheriff, markets analyst at CMC Markets.

Focus is now on Australia's August unemployment rate, which is due to be released on Thursday.

"If the unemployment rate remains low and job numbers are positive, this will suggest the labour market is still tight and the RBA can continue hiking rates aggressively to combat increasing inflation," said Sheriff.

A Reuters poll expects unemployment rate in August to be 3.4%. The jobless rate had dropped to 3.4% in July, the lowest since August 1974.

Financials tumbled 2.9% to drive losses on the benchmark. The country's four largest banks dropped between 1.9% and 3.6%.

Miners slumped 2.3% on weak iron ore prices. Behemoths BHP Group, Rio Tinto and Fortescue Metals fell between 1.8% and 2.5%.

Separately, Rio Tinto said it would team up with its biggest customer China Baowu Steel Group to develop an iron ore project in Western Australia for $2 billion, amid fraught ties between Australia and China.

Across the Tasman Sea, New Zealand's benchmark S&P/NZX 50 closed 0.9% lower at 11,658.04 points, its worst session since Aug. 23.

 

(Reporting by Upasana Singh in Bengaluru; Editing by Sriraj Kalluvila)