Australian economy nearly stalls in Q4, local dollar skids

* Q4 GDP +0.2 pct q/q vs +0.3 pct consensus

* Annual growth at 2.3 pct, the slowest since mid-2017

SYDNEY, March 6 (Reuters) - Australia's economy slowed sharply in the second half of last year as consumers shut their wallets and housing construction pulled back, data showed on Wednesday, sending the local currency to a two-month trough.

The gross domestic product (GDP) figures showed the A$1.8 trillion ($1.32 trillion) economy expanded 0.2 percent in the fourth quarter, slower than the 0.3 percent increase economists had forecast in a Reuters poll. Third-quarter growth was unrevised at 0.3 percent.

Annual GDP rose a below-trend 2.3 percent, the slowest since mid-2017 and confounding expectations for a 2.5 percent increase.

The dismal figures challenge the optimism of the country's central bank, which expects growth to pick up to around 3 percent this year. The data also raises questions over whether the country's recession-free run of 27 years is losing steam.

The disappointing outcome sent the Australian dollar down 0.4 percent to a two-month low of $0.7052.

A major setback in Wednesday's data came from private consumption, which contributed just 0.2 percent to overall growth as households cut back on spending. The category accounts for about 57 percent of Australia's GDP.

An escalating decline in Sydney and Melbourne home prices has eaten into consumer wealth at a time when they hold record levels of mortgage debt. A long stretch of unusually slow wages growth has also throttled household incomes, and shows few signs of changing anytime soon.

The sharper-than-expected downturn in the country's once-booming property market has become a significant point of uncertainty for the Reserve Bank of Australia (RBA), which cut its growth and inflation forecasts last month and moved away from a previous tightening bias.

A decline in dwelling construction was one reason for the soft fourth-quarter outcome, while government spending was the only silver lining in Wednesday's report. (Reporting by Swati Pandey; Editing by Sam Holmes)