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By Himanshi Akhand and Rajasik Mukherjee

Aug 5 (Reuters) -Australian shares slumped more than 3% in their worst trading session in over two years on Monday, joining a global sell-off in riskier assets after weak U.S. labour market data sparked fears the world's largest economy could be heading towards a recession.

The S&P/ASX 200 index .AXJO closed 3.7% lower at 7,649.6 points.

The benchmark index, which reached its all-time high last week, has lost more than 5% in the past two sessions.

Data on Friday showed the U.S. unemployment rate jumped to near a three-year high in July, stoking fears of a sharp slowdown in the U.S. economy and leading markets to price in a near 90% chance that the Federal Reserve will ease rates by 50 basis points in September. FEDWATCH

"While the trigger was largely attributed to weak U.S. job data, the echo of recession calls could potentially spread worldwide," said Hebe Chen, a market analyst at IG.

Traders also exercised caution ahead of the Reserve Bank of Australia's (RBA) policy decision on Tuesday, where it is expected to leave rates unchanged.

"Given the stubbornly high inflation in Australia, it's nearly impossible for the RBA to adopt a softer tone in tomorrow's meeting, further heightening concerns that the rate trajectory ahead will inevitably push the Australian economy into a hard landing," Chen said.

A volatility index for the Australian benchmark .AXVI, an indicator of investor sentiment and market expectations, surged more than 44% on Monday to levels not seen since October 2022.

Banking stocks .AXFJ slumped 5% with the "Big Four" banks shedding between 4.5% and 5.1%.

Real estate shares .AXRE slipped 4.6%. Technology stocks .AXIJ tanked 6.6%, with Zip ZIP.AX and ASX-listed shares of Block SQ2.AX emerging as the worst percentage performers on the benchmark index with an over 10% drop.

Energy .AXEJ and mining stocks .AXMM dropped 4.3% and 2.2%, respectively.

Among the 200 constituents on the benchmark index, only three stocks ended in green, with local shares of Resmed RMD.AX adding 2.9% after positive quarterly results.

New Zealand's benchmark S&P/NZX 50 index .NZ50 closed 1.5% lower at 12,264.49 points.

Reporting by Himanshi Akhand and Rajasik Mukherjee in Bengaluru; Editing by Mrigank Dhaniwala

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