MEL.L Share News (MEL)

* Inquiry into financial sector weighs on bank stocks

* Materials firm on signs of strong China growth(Updates to close)

March 15 (Reuters) - Australian shares finished lower onThursday as an inquiry into the country's scandal-ridden bankingsector weighed on financial stocks, while simmering global tradetensions amid worries of fresh U.S. import tariffs on China alsodampened sentiment.

Australia's S&P/ASX 200 index slipped 11.2 points to5924.1, tracking weaker Wall Street shares that fell for a thirdsession overnight amid concerns about increased protectionismunder U.S. President Donald Trump's administration.

Open economies relying heavily on free trade would have muchto lose should U.S. protectionism lead to tit-for-tat reprisalsglobally. Australia in particular is vulnerable as a producer ofbasic commodities used in the world supply chain.

However, material stocks in Australia firmed on indicationsthat demand from China, the world's top consumer of severalcommodities, would remain strong.

Australia's financial index fell up to 1 percent,with the 'Big Four' banks down 0.9-1 percent due to the inquiry.

"The Commission is focusing on their behaviour and some ofthe headlines appear to be affecting investor sentiment despitethe fact that most of these issues are already well-known," saidMichael McCarthy, chief market strategist at CMC Markets,referring to the judicial inquiry into the banking sector.

"The spotlight now appears to be affecting trading andthey're (banks) certainly underperforming," McCarthy added.

Commonwealth Bank of Australia's Chief ExecutiveIan Narev knew that a system of financial incentives to rewardmortgage brokers could hurt customers but failed to act, theinquiry into the sector heard earlier in the day.

CBA is the second bank to be scrutinised after NationalAustralia Bank, which conceded on the opening days ofthe inquiry that its system of bonuses and incentives encouragedbankers to engage in fraudulent lending practices.

Shares of both ended down 1 percent, their third session ofdeclines.

MATERIAL STOCKS A BRIGHT SPOT

Australia's material stocks offered a bright spot, rising asChinese iron ore and coking coal futures came off multi-monthlows after strong economic data from China pointed to firmdemand conditions in the world's No. 2 economy.

Top miners BHP Billiton and Rio Tinto Ltdclosed 0.7 percent and 2 percent higher, respectively.

Across the Tasman Sea, New Zealand shares recoveredfrom earlier losses to close up 0.4 percent at 8467.33, alsohelped by strength in utilities and material stocks.

Power generator Meridian Energy Ltd, top boost tothe index, added 2.6 percent to hit a near two-month high.

Investors largely shook off data which showed the economygrew at a slower-than-expected pace in the fourth quarter oflast year.(Reporting by Devika Syamnath in Bengaluru, additionalreporting by Nicole Pinto; Editing by Himani Sarkar)