March 19 (Reuters) - Australian shares snapped a two-session rally on Wednesday, led by banking and mining stocks on caution ahead of U.S. Federal Reserve's monetary policy decision, coupled with weaker iron ore prices also weighing on sentiment.

The S&P/ASX 200 index .AXJO fell 0.5% to 7,824.8, as of 2349 GMT. The benchmark closed 0.1% higher on Tuesday.

Investor focus now shifts towards the local jobs data, due on Thursday, where any upside surprise could influence the local central bank to keep rates steady for longer.

Economic uncertainty took over sentiment as the Fed convened for its two-day monetary policy meeting, resulting in equities on Wall Street ending sharply lower overnight. .N

The U.S. central bank will announce its interest rate decision later on Wednesday.

The ripple effects were seen in Australia, where all sub-indexes were trading in the red. Financials .AXFJ, which have the maximum weightage on the benchmark, dropped 0.4%. The "Big Four" banks fell between 0.3% and 0.7%, while Macquarie MQG.AX dropped 0.9%.

Miners .AXMM also emerged as one of the major losers on the benchmark after iron ore ended lower overnight, with investors weighing ongoing weakness in China's struggling property market against the sustained demand for the key steel-making ingredient. The sub-index lost 0.4%.

Mining majors BHP Group BHP.AX, Rio Tinto RIO.AX and Fortescue FMG.AX lost between 0.2% and 1.3%.

Gold stocks .AXGD tracked the rest of the broader market and were trading 0.2% lower despite bullion prices rising to a record high.

Technology stocks .AXIJ fell 0.7% due to a slump in the "magnificent seven" technology shares on Wall Street.

Among individual stocks, Myer MYR.AX slumped 3.3% to a near nine-month low after the department store owner posted lower interim earnings and painted a gloomy retail outlook going ahead. The local consumer staples index .AXSJ fell 0.3%.

In New Zealand, the benchmark S&P/NZX 50 index .NZ50 dropped 0.4% to 12,028.39.

(Reporting by Rishav Chatterjee in Bengaluru; Editing by Rashmi Aich)

((Rishav.Chatterjee@thomsonreuters.com;))

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