Australian shares closed more than 1% lower in the first trading session of the year, finishing at an almost two-month low on Tuesday, as soaring COVID-19 cases in China unsettled investors and fuelled fears of an economic downturn.

The S&P/ASX 200 index lost 1.3% to 6,946.2 points, its lowest close since Nov. 7, 2022, with volumes at a one-year low of 325.8 million.

Broader Asian shares lost steam as China's COVID-19 cases clouded economic growth outlook, potentially impacting demand and supply chains.

Accelerated losses cut across sectors, indexes and individual stocks, which clearly indicate that the "bearish" trend was set to continue in equities, said Kunal Sawhney, chief executive officer, Kalkine Group.

The benchmark index lost 5.5% in 2022 and marked its worst year since 2018.

All the major sub-indexes in Australia finished in the red on Tuesday, with banks losing the most a day after data showed home prices in 2022 dropped the most in 14 years, implying that lenders may be in for a stiff competition.

The "Big Four" banks were deep in the negative territory, with Australia and New Zealand Banking Group falling 2.8%.

Energy stocks lost 1.3% as oil prices fell from their highest levels in a month on a firmer U.S. dollar and IMF warnings of a tougher 2023.

Sector major Santos dropped 0.8%, with Origin Energy down 1.7%.

Miners lost 0.7%, with giants BHP Group, Rio Tinto and Fortescue Metals dropping between 0.5% and 0.8%.

Australian coal stocks tracked broader mood lower as commodities that go into production face the brunt of expectations of a recession, Sawhney said.

Whitehaven Coal and Yancoal Australia shed 6.3% and 5%, respectively.

Bucking the sombre mood, gold stocks were the outliers as bullion prices hit a six-month high in thin trading.

Markets in New Zealand were closed due to a public holiday. (Reporting by Rishav Chatterjee in Bengaluru; Editing by Sherry Jacob-Phillips)