May 26 (Reuters) - Australian shares were flat on Friday, on track to post their worst weekly drop in more than two months, while investors assessed the prospects of the U.S. debt ceiling issue to be resolved before a default is triggered.

The S&P/ASX 200 index was flat at 7,138.40 by 0101 GMT. The benchmark ended 1.1% lower on Thursday.

Globally, news about U.S. President Joe Biden and top congressional Republican Kevin McCarthy edging close to an agreement on the U.S. debt ceiling lifted risk sentiment.

On the local bourse, heavyweight financial stocks rose 0.5%, with the so-called "Big Four" banks up between 0.3% and 0.9%.

Mining stocks edged 0.2% higher.

On the other hand, gold stocks dropped 0.9% and were set for their worst week since Oct. 22 as optimism around the U.S. debt ceiling negotiations lowered safe-haven demand for bullion.

Heavyweights Newcrest Mining fell 1% and Northern Star Resources slid 0.6%.

Energy stocks dipped 0.7% as oil prices dropped after Russian Deputy Prime Minister Alexander Novak played down the prospect of further OPEC+ production cuts at its meeting next week. Australian oil giants Santos dropped 0.7% and Woodside Energy fell 0.6%.

Among individual stocks, shares of Latitude Group plunged as much as 9.7% as the consumer finance firm said it expects to post a steep fall in fiscal 2023 earnings due to higher credit losses and provisions associated with a recent cyberattack.

Fintech company Humm Group said its unit got an interim stop order from the country's corporate regulator restricting it from issuing buy-now-pay-later products to new customers. Humm shares slumped as much as 12.9%.

ASX-listed shares Fisher and Paykel were down 4.1% and after the company posted a 34% drop in full-year profit. It was among the top losers in the benchmark index.

New Zealand's benchmark S&P/NZX 50 index fell 0.5% to 11,895.65.

The country's central bank confirmed it would ease mortgage loan-to-value ratio (LVR) restrictions, which set limits on how much a bank can lend to a home buyer against the value of the house, from June 1.

(Reporting by Poonam Behura; Editing by Sherry Jacob-Phillips)