Dec 8 (Reuters) - Australian shares edged lower on Friday led by banking and gold stocks, while oil and gas producer Santos soared 11% after confirming initial talks with larger rival Woodside Energy over a $53 billion merger.

The S&P/ASX 200 index slipped 0.24% at 7,157.00 as of 0038 GMT. However, it was on track for its best week since Nov. 3, up more than 1%, if gains hold.

Heavyweight banking stocks were the top drags on the benchmark as all the "Big Four" banks retreated from sharp gains logged earlier in the week after data showed Australian economy barely grew in the third quarter, bolstering the case for the central bank to no longer tighten.

The banking sub-index fell as much as 0.8%, marking its worst intraday drop since Nov. 16. Top lenders Commonwealth Bank of Australia and National Australia Bank lost 1% each.

Bucking the trend, the energy index rose up to 1.8%, lifted by Santos which soared up to 11% after the oil and gas producer confirming preliminary merger talks with Woodside Energy that would create a global oil and gas giant.

Santos marked its best day since Nov. 10, 2020, while Woodside shares fell up to 3%.

The gold sub-index slipped as much as 1.4%, with Northern Star Resources down up to 2.4% and Evolution Mining falling as much as 1.9%.

The heavyweight mining index advanced 0.4% led by BHP Group, which rose up to 0.6%.

Meanwhile, the Australian government outlined a new policy structure of the country's central bank in its biggest shake-up in three decades, with its 2% to 3% inflation target the main focus.

The New Zealand's benchmark S&P/NZX 50 index fell up to 0.8% to 11,408.25. However, the benchmark was on track to end the week 0.6% higher, their sixth straight weekly gain.

(Reporting by Adwitiya Srivastava in Bengaluru; Editing by Rashmi Aich)