Australia shares reverse early gains, caution ahead of election

(Adds analysis, quotes, stocks on the move)

SYDNEY, Sept 6 (Reuters) - Australian shares reversed early gains to fall 0.4 percent on Friday with investors cautious ahead of national elections on Saturday, but a rise on Wall Street helped curb losses.

Miners lost ground after copper prices slipped and gold sank to almost 2 percent to two-week lows. BHP Billiton Ltd fell 0.7 percent while Rio Tinto Ltd (Xetra: 855018 - news) lost 0.6 percent. Gold miner Newcrest Mining Ltd dropped 3 percent.

The S&P/ASX 200 index fell 19 points to 5,123.5 by 0141 GMT, slipping further away from the 3-1/2 month highs hit earlier this week. The benchmark fell 0.4 percent on Thursday.

Elsewhere, defensive stocks fell, with telecommunications provider Telstra Corporation Ltd slipping 0.5 percent while blood products maker CSL Ltd (Other OTC: CMXHF - news) lost 1 percent.

Banks were slightly lower; Westpac Banking Corp and Australia and New Zealand Banking Group both dipped 0.5 percent.

"I think it's probably a bit to do with seeing banks as a funding tool, and investors are looking around for other places to go into the market like cyclical stocks," said John Milroy, a private wealth advisor at Macquarie Bank.

Cyclical stocks such as retailer Harvey Norman Holdings Ltd climbed 2.3 percent while shopping centre operator Westfield Group (Other OTC: WEFIF - news) added 0.6 percent.

Trading remained slightly cautious ahead of the elections on Saturday, with polls indicating a decisive defeat for Prime Minister Kevin Rudd's Labor government. Analysts said investors have already priced a lower house win for the centre-right Liberal coalition into valuations.

Not all seats in the upper house Senate are being contested on Saturday and the upper chamber could end up balanced against the Liberal-led government even if it wins the election. It could then potentially dissolve both houses and run new elections.

"Results which see potential for a double dissolution and another election would be a likely negative for markets," said Ric Spooner, chief market analyst at CMC Markets in a note to clients.

Sentiment on the local bourse was further dampened by the possibility of a U.S.-led strike against Syria, and U.S. President Barack Obama faces growing pressure at the Group of 20 summit in Russia not to use military force.

Pancontinental Oil & Gas soared 10.7 percent after the company said it has reached a partner agreement with Tullow Oil on a farm-in deal for its Namibia projects.

Western Desert Resources Ltd jumped 4.9 percent to a two-week high of $0.21 after the company received finance approval for its Roper Bar iron ore project in the Northern Territory.

Local market sentiment was helped slightly as U.S. stocks edged up on Thursday, rising for a third day after strong economic data.

New Zealand's benchmark NZX 50 index was trading flat at 4,605.4 points.

(Reporting by Thuy Ong; Editing by Eric Meijer)