* Financial biggest drag, drop 1.7%

* ASX 200 hits lowest levels in 2 weeks

* Miners fall for third straight session

Aug 17 (Reuters) - Australian shares ended lower on Tuesday as investors were concerned over the economic impact of rising COVID-19 cases even as lockdowns continue, with losses in miners and banks stocks further weighing on the benchmark index.

The S&P/ASX 200 index closed 0.94% lower at 7,511 points after falling as much as 1.2% during the session. The index closed at its lowest levels since August 4.

The growing anxiety over the Delta variant of COVID-19 infections continues as Sydney expects cases to "rise substantially" despite a prolonged lockdown, raising fears of a second recession.

Investor sentiment was also eclipsed by falling iron ore prices that hurt the local mining stocks.

ASX 300 metals and mining index slumped 1.4% led by Piedmont Lithium Inc, down 8.7%, followed by Lynas Rare Earths Ltd, losing 7.9%.

The top miners fell between 1.3% and 1.8%.

Financial stocks were the biggest drag on the index, losing 1.7%. Magellan Financial Group Ltd, down 10.2%, led losses, followed by Zip Co Ltd, losing 3.78%.

The big four banks dropped between 1% and 3.5%.

Energy stocks slipped 1.3%, with Beach Energy closing 5.1% lower followed by Woodside, slipping 2.1%.

New Zealand's benchmark S&P/NZX 50 index fell 0.7% at close to 12,635.32 points as investors await the central bank's monetary policy statement on Wednesday.

"The only potential blot on New Zealand's now overheating economy would be the arrival, Australian-style, of the delta variant in the community there. It shouldn't be enough to sway the RBNZ from announcing a 0.25% rate hike tomorrow," Jeffrey Halley, market analyst at OANDA, wrote in a note. (Reporting by Savyata Mishra in Bengaluru; Editing by Krishna Chandra Eluri)