SYDNEY, Aug 12 (Reuters) - A measure of Australian consumer sentiment fell sharply in August as a strict coronavirus lockdown in Victoria state darkened the mood in a major setback to the country's fledgling economic recovery.

The Westpac-Melbourne Institute index of consumer sentiment sank 9.5% in August from July, when it dropped 6.1%. The retreat almost took the index back to its nadir in April when the whole nation was in lockdown.

The index was also down a hefty 20.4% on August last year at 79.5, meaning pessimists outnumbered optimists by a large margin.

"The scale of the fall comes as a major surprise," said Westpac Chief Economist Bill Evans.

"However, collapsing to only 5.1% above the lows we saw in April when consumers were first confronted with a national lockdown may well prove to be a significant overreaction."

Oddly, sentiment in New South Wales, which only has a few virus hot spots, dived even more than in Victoria.

"For now, we feel the August sentiment read should be treated with more caution than usual," said Evans. "There looks to be an air of panic in the latest survey that is out of proportion with what still look to be manageable virus-related risks outside Victoria."

Some of the shifts in the survey were drastic. Its index measuring the outlook for the economy over the next 12 months dropped 19.2%, and the index for the next five years fell 8.7%.

The measure of family finances compared to a year earlier fared better with a dip of just 0.4%, but the outlook for the next 12 months slid 7.3%.

In a blow for already hard-hit retailers, the measure of whether consumers felt it was a good time to buy a major household item dived 13.2%.

Westpac Banking Corp and the Melbourne Institute surveyed 1,200 people from across the county (Reporting by Wayne Cole Editing by Shri Navaratnam)