By Roshan Thomas and Roushni Nair

Sept 11 (Reuters) -Australian shares ended marginally lower on Wednesday, as losses in financial stocks outweighed miners' gains, while investors were cautious ahead of a key U.S. inflation reading that could influence the Federal Reserve's upcoming interest rate decision.

The S&P/ASX 200 .AXJO closed 0.4% lower at 7978.7.

Markets are weighing whether the Fed would opt for an expected 25 basis-point rate cut, or a larger 50 bp reduction at its Sept. 17-18 policy meeting. MKTS/GLOB

Australian markets are correlated to the U.S. and are influenced particularly by U.S. inflation figures, which impact the Federal Reserve's rate decisions, said Mathan Somasundaram, CEO of DeepData Analytics.

A weak inflation data in the U.S. is crucial for maintaining high valuations in the local market, as it affects the Fed's rate cycle and subsequently global sentiment, he said.

Back in Sydney, banks .AXFJ were the biggest drag on the index, losing 1.7%. The "Big Four" banks dropped between 1.5% and 1.9%.

Australia's prudential regulator on Tuesday proposed replacing bank hybrid bonds with more stable capital, due to financial stability risks from rising retail investor ownership.

"Banks are overvalued and ASIC's move on hybrids are another reason to take profit. Global funds are moving from banks to miners to keep market supported," said Somasundaram.

Miners .AXMM closed 2% higher, led by a rally in lithium-focused stocks.

Pilbara Minerals PLS.AX and Liontown Resources LTR.AX, surged more than 13%, after reports showed Chinese EV battery maker CATL 300750.SZ suspended two mines, reducing lithium supply.

REA Group REA.AX fell 2.2%, after the property firm Rightmove RMV.L rejected REA's takeover bid.

Mineral Resources MIN.AX surged 16%, after receiving Foreign Investment Review Board approval on Tuesday to sell a 49% stake in its Onslow Iron Project haul road.

Other sub-indices largely traded down, with energy .AXEJ, technology .AXIJ, and healthcare .AXHJ losing between 0.3% and 1.4%.

The New Zealand benchmark S&P/NZX 50 index .NZ50 ended largely unchanged.

Reporting by Roshan Thomas and Roushni Nair in Bengaluru; Editing by Rashmi Aich

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