Australian shares tumbled on Thursday after touching a record high in the previous session, with index heavyweight financials leading the retreat, after the U.S. Federal Reserve indicated policy may not start to ease as early as markets were hoping.

The S&P/ASX 200 benchmark index closed 1.2% lower at 7,588.2, snapping an eight-day winning streak.

The Fed left its key policy rates unchanged at 5.25%-5.5% on Wednesday, a move widely expected by market participants, and said rate cuts would not be appropriate until there was greater confidence that inflation was moving towards its 2% target.

"The US FOMC (Federal Open Market Committee) now seems unlikely to cut rates in March and that may mean the RBA (Reserve Bank of Australia) will also wait and see, despite Australian inflation appearing more benign," said Damian Rooney, director of sales at investment house Argonaut.

"May (rate cut) is still probable for Australia as most G8 central banks have the inflation conundrum under control."

In Sydney, rate-sensitive financials dropped 1.8%, marking the biggest percentage loss in three months.

Of the "Big Four" banks, Commonwealth Bank of Australia , the country's biggest lender, fell 2.9% in its worst session in five months. The other three banks lost between 1% and 2.2%.

Real estate stocks closed down 1.67%, with Mirvac Group losing 2.3% and Dexus falling 2.2%.

Tracking their U.S. peers, tech stocks fell 1.3% in their worst day in three weeks. Block Inc's shares in Australia closed down 2.3%.

Heavyweight miners fell 0.8% as iron ore futures slid on weak factory data from China. BHP Group, Rio Tinto and Fortescue lost between 0.3% and 1.3%.

New Zealand's benchmark S&P/NZX 50 index rose 0.4% to 11,916.78, its highest close since August last year.

SkyCity Entertainment and a2 Milk topped gains on the benchmark, advancing 6.4% and 2.3%, respectively.

(Reporting by Sneha Kumar in Bengaluru; Editing by Subhranshu Sahu)