Australia shares fall as worst capex in 6 years dents sentiment

* Business spending worse than expected

* Banks, resources lead shares lower

* Second day of declines (Adds analysis, quotes, stocks on the move)

SYDNEY/WELLINGTON, May 28 (Reuters) - Australian shares gave up early gains and fell by mid-session on Thursday after weaker than expected business spending data suggested rate cuts are failing to ignite the economy as hoped.

After edging higher at the open, the benchmark index slid into negative territory after the Australian Bureau of Statistics said capital expenditure fell the most in six years in the March quarter, nearly double the decline forecast.

By 0235 GMT, the S&P/ASX 200 index was down 23.2 points or 0.4 percent at 5702.3, its second straight day of declines.

"They were probably disappointing numbers. It was down a fair bit more than the (forecast)," said James McGlew, executive director of corporate stockbroking at broking firm Argonaut.

Some selling was technically-driven after the market rose above key support levels, McGlew added.

Banks and miners led the falls, with Commonwealth Bank of Australia down 1 percent and National Australia Bank down 0.5 percent, while Westpac Banking Corp edged up 0.2 percent.

Gold producer Newcrest Mining (Dusseldorf: NMA.DU - news) dropped 5 percent, after a broker report said Newcrest was one of the only gold stocks it wouldn't recommend buying.

Iron ore giant BHP Billiton (NYSE: BBL - news) declined 1.3 percent amid concerns a gain in the steel-making ingredient's spot price will be shortlived. Rio Tinto (Xetra: 855018 - news) was steady, while BHP's spin-off of its non-core assets, South32 (Berlin: 32Z.BE - news) , dipped nearly 3 percent. Another BHP spin-off, steel-producer Bluescope , also fell nearly 5 percent.

Rival iron ore miner Fortescue Metals Group was steady.

Scientific testing firm ALS, short for Australian Laboratory Services, tumbled more than 5 percent after reporting underlying full-year profit fell by a fifth.

New Zealand's benchmark NZX50 share index edged up 8.1 points or 0.1 percent to 5,766.09, bolstered by gains in Spark, which recovered from the previous day's selling.

The telecommunications retailer climbed 1.9 percent as domestic investors picked up shares in one of the country's largest firms following the previous day's selling.

Summerset rose 0.9 percent after the retirement village operator said it would consider building more villages in the South Island.

Further gains were limited by a 1.8 percent slide in SkyCity Entertainment, which fell on media reports that it may spend more than it originally planned to build a convention centre in Auckland.

Shares (Berlin: DI6.BE - news) in Fonterra's trading fund slipped 0.4 percent after the dairy co-operative said it expects global demand for dairy products to improve only marginally in the next year, after announcing a slight lift in its farmgate price.

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(Reporting by Byron Kaye and Naomi Tajitsu; editing by Simon Cameron-Moore)