SYDNEY: Australian shares kicked off the week on a lacklustre note to close 1.5% lower on Monday, with financials and energy stocks leading the declines, as a global upsurge in COVID-19 infections sent traders towards a risk-off mode.

The S&P/ASX 200 index dropped 2.2% earlier in the session, before recouping much of their early losses to end down 1.5% at 5,815.0, its lowest close since June 15.

Investors were unnerved as the death toll from COVID-19 surpassed half a million people on Sunday, while Australia reported its biggest daily rise in new infections in more than two months.

"We're still in this quite horrible wait-and-watch mode and I think there's real concern with the milestones in number of cases and deaths escalating in certain parts of the world," said Nick Twidale, general manager at IC Markets.

"We're not seeing crashes, the market is prepared for the dips, but if we do see acceleration in the pandemic then I think we are in for a quite tough week."

Weighing the most on the benchmark was the 1.6% drop in financial stocks as the "Big Four" banks lost between 1.5% and 2.5%.

Australia's energy sub-index dropped up to 3.9% to its lowest in more than a month as oil prices slid for a second straight session.

A sub-index of miners also dragged the index, as heavyweights BHP Group and Rio Tinto slipped 2.1% and 1.8% respectively. Stocks in both companies were also pressured by a dip in iron ore prices.

Bucking the trend, gold stocks gained 0.9%, helped by a rise in bullion as investors opted for safe-haven assets.

In New Zealand, the benchmark S&P/NZX 50 index rose 1.1% to 11,252.54 as utility and healthcare stocks gained.

Shares of Fisher & Paykel Healthcare Corp rose 4.7% and was the top percentage gainer on the benchmark after the medical devices maker reported strong annual results.