Oct 4 (Reuters) -Australian shares fell on Friday and were set for a weekly loss, as the widening Middle East conflict soured risk sentiment, while local energy stocks rose as fears of a disruption in global crude flows sent oil prices surging.

The S&P/ASX 200 index .AXJO fell 1.1% to 8,117.1 by 0037 GMT, and was set to lose more than 1% for the week in what could be its biggest weekly drop since early-August.

The benchmark touched a record high of 8,285.7 on Monday, driven by gains in heavyweight miners after China unveiled a slew of stimulus measures to support its economy.

However, dampened rate-cut hopes after strong retail sales data and growing geopolitical tensions saw the market reverse those gains.

Israel bombed Beirut early on Thursday following a year of clashes with Iran-backed Hezbollah, while U.S. President Joe Biden said Washington was discussing strikes on Iran's oil facilities.

Consequently, Brent crude futures settled up 5% overnight, pushing Australian energy stocks .AXEJ up nearly 2% on Friday. The sub-index was set for a fourth straight weekly rise. O/R

Heavyweights Woodside Energy WDS.AX and Santos STO.AX gained 2% and 1.6%, respectively.

All other sectors were in negative territory, with miners .AXMM leading the decline with a 2.2% fall after copper prices retreated overnight. The sub-index was set to post its biggest weekly fall in a month. MET/L

Financials .AXFJ slipped 1.2%, with the "Big Four" banks all down between 0.6% and 1.3%.

Overnight, the U.S. Dow Jones Industrial Average .DJI fell 0.44%, the S&P 500 .SPX lost 0.17% and the Nasdaq .IXIC lost 0.04%. .N

Investors now await the U.S. nonfarm payroll data, due later in the day, for insight into the Federal Reserve's anticipated interest rate reduction next month.

New Zealand's benchmark S&P/NZX 50 index .NZ50 fell 0.3% to 12,237.7.

The Reserve Bank of New Zealand is set to cut its key interest rate by 50 basis points to 4.75% next week, according to a Reuters poll.

Reporting by Himanshi Akhand in Bengaluru; Editing by Subhranshu Sahu

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