Australian shares fell on Friday as a fresh cluster of COVID-19 cases in the country's largest city ignited fears that movement curbs could make a comeback and slow down an economic recovery.

New South Wales state Premier Gladys Berejiklian warned Sydney should prepare for more infections after 17 new cases were reported in the city's northern coastal suburbs, prompting authorities to ask residents to stay at home for three days.

The S&P/ASX 200 index fell 0.5% to 6,722.9 by 0006 GMT, retreating from a near-10-month high hit in the previous session. But, the index is still headed for a seventh straight weekly gain.

The fresh outbreak marks the end of a two-week run of no local coronavirus transmission and has prompted other states to tighten movement across state borders.

The possibility of further restrictions ahead of Christmas season dragged shares of airlines lower, with Qantas and smaller rival Regional Express Holdings sliding as much as 4.3% and 5.6%, respectively.

Heavyweight financials led losses on the benchmark, as Commonwealth Bank of Australia dropped 1.3% and National Australia Bank shed 1.6%.

Energy stocks also dipped despite an uptick in oil prices, with Ampol and Santos being the biggest the drags.

On the flip side, gold stocks rose 1.8% and supported some gains on the metals and mining sub-index as the bullion continued its climb on hopes of more US stimulus. Newcrest Mining added 1.7% and Northern Star Resources tacked on 2.6%. The gold sub-index was on track for its best week since Nov. 6.

In New Zealand, the benchmark S&P/NZX 50 index rose 0.5% to 12,950.52, with utilities and healthcare stocks leading the gains.

However, flag carrier Air New Zealand, which has been preparing for a travel bubble with Australia in early 2021, fell 1.9%.