* AXJO marks worst session since Oct. 19

* Benchmark closes at lowest level since Dec. 22

* Fortescue slips off record high, down ~2%

* NZ50 snaps five-session winning streak

Jan 3 (Reuters) - Australian shares fell more than 1% on Wednesday in their worst session since mid-October, led by heavyweight mining and banking stocks, as Asian markets extended a global sell-off on fading optimism about early and aggressive U.S. interest rate cuts.

The S&P/ASX 200 index ended down 1.4% at 7,523.20, marking its worst day since Oct. 19 and lowest close since Dec. 22. On Tuesday, the benchmark nearly touched its all-time high of 7,632.80 before closing 0.5% higher.

Miners and banks were the top drags on the benchmark, shedding more than $13 billion in total market value. Mining giants like BHP Group and Rio Tinto, and banks like Commonwealth Bank of Australia and National Australia Bank all declined more than 1%.

Risk sentiment was soured by a rise in U.S. Treasury yields, reflecting tempered expectations for rate cuts this year, even as investors keenly awaited U.S. economic data including jobs numbers and Federal Reserve minutes this week.

Luca Santos, a currency analyst at ACY Securities, forecasts three consecutive quarter-point rate cuts in March, May, and June, followed by one cut per quarter until the Fed funds rate reaches 3.25% to 3.5% in the third quarter of 2025.

"The swift decline in inflation is expected to prompt the FOMC (Federal Open Market Committee) to implement early and rapid rate cuts to realign the policy rate, given that most participants are likely to perceive the current level as offside," Santos said.

In Sydney, financials fell 1%, with all the "Big Four" banks losing about 1%.

Miners lost 1.8%, even as iron ore futures rose on hopes of fiscal stimulus in China, while gold stocks slumped 2.7% despite an uptick in bullion prices.

Fortescue slipped from its record high scaled on Tuesday, shedding nearly 2% after confirming the derailment of multiple ore cars in Western Australia.

In New Zealand, the benchmark S&P/NZX 50 index closed 0.3% lower at 11,730.130, breaking a five-day winning streak. (Reporting by Sherin Sunny in Bengaluru; Editing by Subhranshu Sahu)