Australia shares drop 1.4 pct; NAB outlook weighs

* Cautious NAB outlook knocks banks

* Financial services sector <.AXFJ> drops 2.3 percent

* Falling Aussie dollar hurts miners

* Mining, infrastructure services updates add to gloom (Adds dealer, fund manager comments)

MELBOURNE/WELLINGTON, Oct 28 - Australian stocks slid 1.4 percent on Wednesday, with banks leading the falls after National Australia Bank <NAB.AX> warned of headwinds while miners lost ground as the Australian dollar dropped.

NAB, Australia's biggest bank by assets, reported an 8 percent rise in second-half cash profit, in line with market forecasts, but Chief Executive Cameron Clyne's outlook rattled a market which had priced in strong growth for the banks.

"The bank weakness certainly helped pull the market lower, not necessarily because of the numbers, but more so because of the commentary, which was pretty cautious," said Justin Gallagher, head of Sydney sales trading at RBS Australia.

For a full story on NAB, click on [ID:nSYD510266].

The benchmark S&P/ASX 200 index <.AXJO> lost 68.4 points to finish at 4,685.1, adding to a 1.6 percent decline on Tuesday.

New Zealand's benchmark NZX 50 index <.NZ50> gained 0.3 percent to close at 3,202.8.

Commonwealth Bank of Australia <CBA.AX>, the biggest bank by market value, led the way down, sliding 3.8 percent to A$53.03, while NAB fell 2.8 percent to A$29.83. The top four banks had gained between 47 and 90 percent so far this year, outperforming a 28 percent gain in the broader market, ahead of Wednesday's slide.

"Considering the run they've had, most are of the opinion that they've been pushed a little bit too hard," Gallagher said.

A fall in the Aussie dollar also knocked the market, after the latest inflation reading in Australia dampened prospects of a steep rate rise next week. [ID:nSYD541217]

With the U.S. dollar perking up, commodities priced in U.S. dollars go up, which could curb demand for metals. Top miner BHP Billiton <BHP.AX> fell 1.2 percent to A$38.40, while Rio Tinto fell 1.4 percent to A$64.10.

The Aussie dollar's fall could also prompt offshore investors to pull out of Australian assets.

"It could be nasty for our market if our Australian dollar does not hold up so well," said Hugh Giddy, managing director of boutique fund manager Cannae Capital Partners.

Gloomy updates from building materials firm Boral <BLD.AX> and mining and engineering products provider Bradken <BKN.AX>, hit those sectors hard.

Boral fell 4.8 percent to A$5.81, while rival CSR <CSR.AX> fell 3.6 percent to A$1.87 and Adelaide Brighton <ABC.AX> fell 2.8 percent to A$2.79.

Bradken and Macmahon Holdings <MAH.AX> were the index's worst performers, down 7.7 percent to A$6.18 and 8 percent to A$0.57 respectively.

But defensive stocks helped stem the market's fall, with top telecommunications firm Telstra Corp Ltd <TLS.AX> rising 1.5 percent to A$3.29 while supermarkets group Woolworths Ltd <WOW.AX> rose 0.2 percent to A$28.82.