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By Sherin Sunny

Feb 21 (Reuters) - Australian shares closed lower on Friday, rounding off their worst week in nearly two-and-a-half years as banking stocks went on a seven-session losing streak that was exacerbated by the central bank's first rate cut in five years.

The S&P/ASX 200 index .AXJO closed 0.3% lower at 8,296.2 points on the day. It tumbled 3% this week, its biggest such drop since September 2022.

Financial stocks .AXFJ slid 1.3% on the day, falling more than 1% for the fourth straight session since the Reserve Bank of Australia $(RBA)$ cut rates, threatening margins already under pressure from intense competition. Earlier this week, Westpac WBC.AX reported lower margins for the quarter.

The financial index has tumbled 7.5% in the past five sessions, its worst week since March 2020. It hit a record high last week before embarking on a seven-session slide in which it has lost 7.7%.

"We see further risk to share prices as valuations remain high (with) earnings risks from rate cuts reflected in margins and potential capital outflows," Macquarie analysts said.

Another laggard on the day was the consumer discretionary index .AXDJ, which fell 1.5%.

At one end, property classifieds firm Domain Holdings DHG.AX surged 40% after a $1.69 billion takeover bid from U.S.-based CoStar CSGP.O.

Domain was the top gainer on the all-ordinaries index .AORD and also hauled up controlling shareholder Nine Entertainment NEC.AX by 20%.

On the flip side, Domain's rival REA REA.AX dropped 11.4% and was one of the top losers on the benchmark ASX 200, while its controlling shareholder News Corp's Australia-listed shares NWS.AX lost 6.5%.

Mexican fast-food chain Guzman y Gomez GYG.AX tumbled 14.3%, the most on the ASX 200 and also dragged on consumer stocks, after its first-half underlying earnings missed estimates.

New Zealand's benchmark S&P/NZX 50 index .NZ50 closed 1% lower at 12,752.58.

(Reporting by Sherin Sunny in Bengaluru)

((Sherin.Sunny@thomsonreuters.com))

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