(Adds analysis, quotes, stocks on the move)
SYDNEY, Sept 30 (Reuters) - Australian shares slid 1.3 percent from five-year highs on Monday, their biggest one-day drop since early August, after Wall Street fell on concerns over looming fiscal deadlines.
The Big Four banks lost ground in a broadbased sell-off. Westpac Banking Corp lost 1.5 percent while Australia and New Zealand Banking Group dropped 1.6 percent.
Analysts said that despite a fall in the session, the banks were trading close to fair-value estimates, driven by growing profits and dividends.
The S&P/ASX 200 index fell 70.4 points to 5,236.7 by 0155 GMT, its biggest one-day fall since August 7. The benchmark edged 0.2 percent higher on Friday to hit a five-year high.
The local bourse took its lead from U.S. stocks, which declined on Friday, with the S&P 500 and Dow posting their first weekly drop in four, as Democrat and Republican lawmakers struggled to agree an emergency funding bill to avert a U.S. government shutdown that could start on Tuesday.
President Barack Obama warned the U.S. Congress against a government shutdown as lawmakers wrangled over the bill that some Republicans want to use to defund Obama's healthcare reform law.
A handful of defensives also lost ground with blood products maker CSL Ltd (Other OTC: CMXHF - news) tumbled 1.6 percent and top telecommunications giant Telstra Corporation Ltd shed 0.7 percent. Consumer staples retailer Wesfarmers Ltd lost 1.1 percent.
However, a lift of around 1 percent in gold prices helped cap broader losses as investors sought safe-havens, driven by a possible shutdown of U.S. government operations. Newcrest Mining Ltd climbed 1.7 percent while Medusa Mining Ltd rallied 2.5 percent.
"The Australian and New Zealand share market is trading around fair value following recent strong gains," said Andrew Doherty, head of equities at research investment firm Morningstar (NasdaqGS: MORN - news) , in a note to clients.
"The Australian economy is softening but the platform is in place for mild recovery during 2014, helped by low interest rates and improving consumer confidence."
Elsewhere, China's factory sector grew in September, suggesting Asia's economic powerhouse is starting to turn the corner, though a firm rebound remains elusive, further dampening sentiment on the local benchmark index.
OZ Minerals Ltd jumped 3 percent to A$4.54, but fell from early highs as the copper miner said it had not been approached by Glencore Xstrata (Other OTC: GLCNF - news) with any proposal after a British newspaper said Glencore was weighing a 750 million pound ($1.2 billion) bid.
Mirabela Nickel Ltd (Toronto: MNB.TO - news) slumped 28 percent to all-time lows of A$0.02 after credit ratings agency Moody's placed its CAA1 rating on review for a downgrade and after the company said its sales agreement with Votorantim will terminate at the end of November (Xetra: A0Z24E - news) .
New Zealand's benchmark NZX 50 index fell 0.8 percent or 37.5 points to 4,745.2.
(Reporting by Thuy Ong; Editing by Eric Meijer)