Australia shares edge higher in choppy trade, banks buoy

* ASX 200 reverses early loss to add 0.1 pct, banks, insurers lift

* 87 shares higher, 101 shares lower, 12 shares unchanged (Adds analysis, quotes, stocks on the move)

By Thuy Ong and Naomi Tajitsu

SYDNEY/WELLINGTON, Aug 26 (Reuters) - Australian shares added 0.1 percent on Tuesday, as banks and insurers helped lift the market to follow Wall Street higher overnight, but resource stocks underperformed as spot iron ore prices remained locked near the year's lows.

The S&P 500 was unable to hold the 2,000 mark after moving above the milestone level for the first time on Monday, but still managed to close at a record high.

Banks supported the market, with Commonwealth Bank of Australia (Other OTC: CBAUF - news) added 0.5 percent, Westpac Banking Corp gained 0.3 percent, and National Australia Bank rose 0.4 percent.

The S&P/ASX 200 index added 8 points to 5,642.9 by 0147 GMT. The benchmark lost 0.2 percent on Monday, snapping seven consecutive sessions of gains, its longest streak since mid-July.

Benchmark spot iron ore is trading close to this year's low of $89 a tonne. Global miner Rio Tinto Ltd (Xetra: 855018 - news) dipped 0.4 percent, while Australia's no.3 iron ore miner Fortescue Metals Group lost 0.7 percent.

The benchmark index hit a 5-1/2 week trough of 5,425.2 on August 8 but has since jumped some 200 points to hover at six-year highs, underpinned by a robust earnings season.

"The local market may experience near-term downside toward 5,600," Tim Radford, global investment manager at Rivkin Securities said in a note.

"A strong finish to the local earnings season is likely what this market needs to find firmer upside direction."

Cover-More Group Ltd jumped 4 percent to near 2-1/2 month highs of A$2.06 after beating its prospectus forecasts. Among other insurance companies, Suncorp Group added 0.9 percent, while Insurance Australia Group gained 0.6 percent.

Boart Longyear Ltd dropped 10.3 percent to 3-1/2 week lows of A$0.17 after the drilling services firm posted a net loss in the six months to June.

Among retail earnings, Pacific Brands Ltd climbed 1.3 percent after Australia's largest-listed clothing manufacturer swung to a net loss in the year to June, largely hit by one-off items even as sales revenue ticked up.

Specialty Fashion Group recovered slightly to fall 8.9 percent after touching 4-1/2 month lows. The company said its full year profit after tax fell 3.8 percent to A$12.5 million.

New Zealand's benchmark NZ-50 index inched up 17.73 points to 5,200.47, hovering near an a three-month intraday high hit on Monday.

Gains were led by a 8.7 percent rise in Tourism Holdings which rallied to a near six-year high of NZ$1.39 ($1.16) after the tourism company reported a near 200 percent jump in full-year profits.

Xero climbed 2.0 percent to a near one-month high of NZ$25.50, extending its recovery from a 10-month low around NZ$20.15 hit earlier this month.

Investors returned to the accounting software developer after share prices for newer tech firms, including Serko and Gentrack, have struggled following their listings in past months.

Further gains were curbed by a 2 percent fall in Cavalier Corporation , which extended losses to a 16 1/2-year low of NZ$0.92 after the soft flooring manufacturer late last week announced an effective fall in profits due to stiff competition in Australia and a strong domestic dollar.

New Zealand Oil and Gas fell 1.3 percent after it announced a fall in full-year profits, while Auckland Airport slipped 0.5 percent to a six-month low of NZ$3.68 after the company's full-year profits came in line with analysts' expectations. (Editing by Eric Meijer)