Australian shares fell 3.5 percent to a three-month closing low on Monday as property trusts slumped on refinancing troubles at Centro Properties Group and financial sector stocks were dumped on a cloudy outlook for global credit markets.

Mining companies fell on concerns about commodity prices after a surge in U.S. inflation made it less likely the Federal Reserve would cut interest rates and stimulate the economy.

“People are obviously very nervous about the effect the subprime things are having on the funding. Anything with a whiff of U.S. and exposure to funding needs is being hammered,” said Eric Betts, head of strategy with Nomura Australia Ltd.

Australia’s real estate investment trusts have expanded into U.S. and Europe over the past few years, having dominated the domestic market, with an strong yield attracting money from pension fund managers to the sector.

“They have boosted their gearing … and they were a kind of financial engineering too and that is unravelling it seems,” Betts added.

Centro Properties tumbled 76.1 percent to A$1.36, recovering from a life-low of A$1.29. It was the most active stock with about 14 percent of its shares changing hands (for more, see [ID:nSYD95587]).

Centro is the second major Australian victim of the subprime crisis after non-bank lender RAMS Home Loans Group Ltd failed to refinance its loans in August.

Centro’s outlook sent ripples through the sector and pushed the property sub-index <.AXPJ> down 11.4 percent.

RAMS fell 7.8 percent to A$0.30. Westfield Group , the world’s biggest property group by market value, slipped 5.8 percent to A$19.57 and Goodman Group tumbled 25.7 percent to A$4.13.

The benchmark S&P/ASX 200 index dropped 228.2 points to 6,263.5, based on the latest available data, its biggest one-day percentage fall since Aug. 10 and the lowest close since Sept. 18. The index lost 2.4 percent last week.

New Zealand’s benchmark NZX-50 index fell 46.0 points, or 1.1 percent, to 3,962.6. Auckland International Airport Ltd fell 2.1 percent to nZ$2.74 after it rejected an offer from a Canadian pension fund to take a major stake. [nWEL78552].

FINANCIALS DROP

Macquarie Group Ltd lost 5 percent to A$76.10 while Babcock & Brown shed 4.5 percent to A$26.20.

Data showing a surge in U.S. inflation on Friday was seen making it more difficult for the Federal Reserve to cut interest rates further. Lower rates help investment banks to source cheap debts for their deals.

BHP Billiton Ltd , the world’s biggest miner, lost 4 percent to A$40.37 and Rio Tinto Ltd shed 3.9 percent to A$131.85 amid concerns about commodity prices due to sluggish economic growth.

Elsewhere, Vector Resources Ltd leapt 75 percent to A$0.35 on its debut after raising A$12 million through an initial public offering (IPO) at A$0.20 a share.

Investment company E&A Ltd surged 39 percent to A$1.39 after raising A$13.7 million through an IPO at A$1.00.

Nickel miner Allegiance Mining surged 38 percent to A$0.98 after after zinc producer Zinifex Ltd launched an all cash bid worth up to A$775 million ($668 million) [nSYD95623].

Also among gainers was Australian-listed shares in ResMed Inc , adding 5.6 percent to A$5.56 after a recommendation by the U.S. Centre for Medicare and Medicaid Services, which could lead to increased sales of respiratory products such as those made by ResMed. ($1=A$1.16) (Reporting by Denny Thomas; Editing by Jonathan Standing)