Australian shares dropped the most in nearly three months on Wednesday, tracking overnight Wall Street losses, with banks and miners weighing heavily on the benchmark index.

The S&P/ASX 200 index fell 1.7% to 6,943.9 by 0037 GMT, snapping a three-day winning streak, and was on track to mark its worst session since Feb. 26. The benchmark rose 0.6% on Tuesday.

Major indexes on Wall Street fell overnight, as a sharp decline in telecom stocks and weak housing starts data overshadowed strong retail earnings.

Investors now await minutes from the US Federal Reserve's April policy meeting later in the day. Rising inflationary pressure in the United States has been increasing investor speculation that the Fed could possibly raise interest rates sooner than anticipated.

A measure of Australian consumer sentiment fell in May to break a three-month winning streak, with the measure of family finances compared with a year ago down 5.4%.

Among sectors, miners fell as much as 2.8%, even as Chinese ironore futures rose overnight.

Global miner Rio Tinto Ltd fell 3%, while larger peer BHP Ltd fell 2.5%.

The heavyweight financial sector eyed its worst session in a week, with all the "Big Four" banks trading in the red.

Energy stocks were the biggest losers on the benhcmark index, snapping a four-session rally, as oil prices dropped overnight.

Woodside Petroleum Ltd fell 1.6%, while Santos Ltd lost as much as 2.9%.

Gold stocks also saw losses, with sector heavyweight Newcrest Mining Ltd on track to record its worst day in nearly three weeks.

New Zealand's benchmark S&P/NZX 50 index fell 0.7% to 12,336.09.

Investors are awaiting the country's budget on Thursday, where the government is expected to unveil a smaller deficit and a more optimistic economic outlook.