* RBA keeps rates at record low, drops yield control

* Miners and banks worst performers

* Insurance Australia down 7% after flagging higher costs (Updates to close)

Nov 2 (Reuters) – Australian shares fell on Tuesday, dragged down by banking heavyweights and miners, after the central bank abandoned an ultra-low target for bond yields and opened the door for an earlier interest rate hike.

The benchmark S&P/ASX 200 index closed 0.6% lower at 7,324.3, erasing Monday’s gains.

The Reserve Bank of Australia left cash rate untouched at its monthly policy meeting, but dropped a commitment to keep yields on the April 2024 government bond at 0.1%, citing improving economic recovery and rising inflation.

The new economic forecasts “are a little more cautious than we had expected but certainly indicate that the board expects that conditions necessary for the first rate hike will be in place during 2023,” Westpac’s chief economist Bill Evans wrote.

Miners were the biggest laggards on the benchmark index, shedding more than 2% as iron ore prices fell on poor demand outlook.

Index majors BHP Group and Rio Tinto were down between 2% and 2.5%.

Financials fell 1.3% to hit their lowest since Oct. 7, as insurers and the “Big Four” banks all closed lower.

Insurance Australia Group was the worst performer on the sub-index, dropping 7% after it warned of higher costs due to bad weather. That dragged rivals QBE Insurance Group and Suncorp Group Ltd lower too.

Energy and gold stocks fell about 1% each.

Among stocks, real estate firm Goodman Group was a bright spot, climbing as much as 7.6% to hit its highest level in nearly 14 years after it raised its 2022 fiscal year earnings outlook.

Meanwhile, New Zealand’s benchmark NZX 50 index fell 0.3% to 12,992.5, with local shares of Westpac Banking Corp being the top losers with a 4.7% drop.

In other markets, Japan’s Nikkei was down 0.4%, while S&P 500 E-minis futures were down 0.1%. (Reporting by Yamini C S in Bengaluru; Editing by Subhranshu Sahu)

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