Australia shares slip on banking inquiry, global trade woes; NZ down

* Inquiry into Australia's banking sector hits financialstocks

* But material stocks firm on indication of strong Chinademand

* U.S. pressing China to cut trade surplus by $100 bln

By Nicole Pinto

March 15 (Reuters) - Australian shares slipped on Thursdayas an inquiry into the country's scandal-ridden banking sectorhit financial stocks, while simmering global trade tensions amidworries of fresh U.S. import tariffs on China also dragged downsentiment.

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.

Australia's S&P/ASX 200 index dropped 0.38 percentto a one week-low, or 22.8 points, to 5913.1 by 0106 GMT. Thistracked weakness in Wall Street shares, which fell for a thirdsession overnight on intensifying fears of a trade war.

While a strength in material stocks helped put a floor underAustralian shares, the country's financial index fell upto 1 percent, with the 'Big Four' banks slipping by 0.8-1.1percent 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.

National Australia Bank Ltd stated at the inquirythat a system of bonuses and incentives had encouraged bankersto engage in fraudulent lending practices to boost theirincomes.

The bank's shares fell as much as 1 percent on Thursday,extending losses into a third session.

However, Australia's material stocks offered a bright spot,rising as Chinese iron ore and coking coal futures reboundedfrom multi-month lows after strong economic data from Chinapointed to firm demand conditions in the world's No. 2 economy.

Top miners BHP Billiton and Rio Tinto Ltdrose as much as 0.8 percent and 1.02 percent, respectively.

Among industrial stocks, logistics company Brambles Ltdrose as much as 2.3 percent, while Qantas Airways Ltdclimbed 2.5 percent to an almost four-month high.

New Zealand shares were marginally lower after data showedthe economy grew at a slower-than-expected pace in the fourthquarter of last year, cementing expectations the central bankwill hold interest rates for a prolonged period.

New Zealand's benchmark S&P/NZX 50 index edged 0.05percent lower or 4.560 points to 8428.070

Fletcher Building Ltd rose 3.2 percent while SparkNew Zealand Ltd fell around 4 percent to a one-week lowin intraday trade.(Reporting by Nicole Pinto, additional reporting by ChristinaMartin in Bengaluru; Editing by Himani Sarkar)