Australia shares reverse early gains, banks soft

* Benchmark index reverses earlier gains to trade flat

* Caution as Wall St dips over worries of early rate hike (Adds analysis, quotes, stocks on the move)

By Thuy Ong and Gyles Beckford

SYDNEY/WELLINGTON, June 27 (Reuters) - Australian shares were flat on Friday, as investors remained wary after U.S. stocks dipped on worries that an interest rate hike could come sooner than expected, though gains in the mining and defensive sectors kept the market in check.

Banks reversed early gains as three of the four big lenders traded ex-dividend. Australia and New Zealand Banking Group slipped 0.4 percent while Westpac Banking Corp and National Australia Bank both declined 0.1 percent.

The S&P/ASX 200 index lost 1.5 points to 5,462.8 by 0209 GMT after touching a 2-1/2-week high of 5,480 earlier in the session.

The benchmark climbed 1.2 percent on Thursday, and is on track to add 0.8 percent for the week which would be its best weekly performance in two months.

"Once the market clues onto an imminent rate hike that may be the precursor toward increased volatility and equity market downside," said Tim Radford, global investment manager at Rivkin Securities in a note.

"For now, however, market participant complacency and upside in equities will likely continue."

Copper climbed to a session high of $6,954 a tonne, the strongest since May 28, while iron ore rose to $95.30 overnight, continuing a recovery from last week's 21-month low.

Among miners, BHP Billiton Ltd was flat while Rio Tinto Ltd added 0.3 percent. Sandfire Resources climbed 1.2 percent.

A handful of defensive shares also ticked higher. Top telecommunications provider Telstra Corporation Ltd added 0.6 percent, while blood products maker CSL Ltd (Other OTC: CMXHF - news) rose 0.7 percent.

Tatts Group jumped 3 percent to A$3.22, its highest since November 2013 after an Australian court ordered Victoria state to pay the slot machine company A$451 million ($424 million) in compensation, plus interest, after ruling in favour of the firm's claim that it lost earnings when the state moved to liberalise the slot machine industry.

Elsewhere, Tabcorp Holdings Ltd tumbled 5.6 percent as the Victorian Supreme Court ruled against its claim of A$690 million in compensation.

Toilet and tampon maker Asaleo Care Ltd debuted at A$1.71 against an issue price of A$1.65.

Cockatoo Coal rocketed 25.9 percent to 7-week highs of A$0.03 after saying its major shareholders are in an advanced stage of discussion with JFE Soji Trade Corp regarding future direction and its Baralaba joint venture.

New Zealand's benchmark NZX 50 index added 0.2 percent to 5,142.5, resuming trade after a three-hour halt due to a technical hitch. The market was trading with a firm tone in modest volumes.

(Reporting by Thuy Ong; Editing by Jacqueline Wong)