* ASX 200 closed down 0.5%

* ASX-listed Life360 top gainer on benchmark

* James Hardie rose 8.3%

May 16 (Reuters) - Australian shares fell on Tuesday, with most major sectors settling in the red after the country's central bank flagged the need for further interest rate hikes at its May meeting.

The S&P/ASX 200 index ended 0.5% lower to close at 7234.70 points, its biggest percentage drop in two weeks. The benchmark closed marginally higher on Monday.

Minutes from the Reserve Bank of Australia's (RBA) May 2 policy meeting showed that the central bank decided to hike rates due to inflation risks from weak productivity growth, persistently high services inflation and faster-than-forecast rise in rentals, saying further rate increases may be required.

Following the release of the minutes, the Westpac-Melbourne Institute index of consumer sentiment slid 7.9% in May from April, with the index falling to just above the levels seen in March. The Health Care sub-index was down 1%.

"Markets are trying to find a catalyst, but with consumer confidence readings, investors are not confident in driving the market higher as they are worried about what is ahead," said Josh Gilbert, analyst at investment firm eToro.

In Sydney, heavyweight financial stocks fell 0.4% with the Commonwealth Bank of Australia easing 0.9%.

Among individual stocks, ASX-listed Life360 Inc closed 11.7% higher to top gains on the benchmark index after posting a narrower quarterly loss.

James Hardie Industries Plc advanced 8.3% after it forecast a higher profit for the first quarter of fiscal 2024.

Gold stocks declined 1% as the U.S. debt ceiling deal and the risk of a default curbed further losses in bullion. Newcrest Mining Ltd fell 1%.

Miners were flat. Mining firm BHP and South32 rose 0.5% each.

In New Zealand, the Labour government is set to reveal a worse budget bottom line and economic outlook on Thursday as it delivers what it calls a "no frills" 2023-24 budget to avoid fuelling inflation.

The benchmark S&P/NZX 50 index rose 0.1%, to close at 11,945.87. (Reporting by Ayushman Ojha in Bengaluru; Editing by Sonia Cheema)