Australia shares sag as banks retreat, NZ steadier

(Adds analysis, quotes, stocks on the move)

By Gyles Beckford and Ian Chua

SYDNEY/WELLINGTON, Aug 5 (Reuters) - Australian shares fell on Wednesday as the banking sector came under renewed pressure following a negative lead from Wall Street.

The S&P/ASX 200 index shed 0.3 percent, or 17.5 points, to 5,680.4 by 0320 GMT, retreating from a two-month peak of 5,727.7 on Tuesday. It slid as far as 5,640.0 earlier.

Traders said the failure to hold above 5,700 for a third time since June also frustrated some investors.

The big four banks, which hit multi-week highs in the previous session, all came in the crosshairs of sellers. Commonwealth Bank of Australia (Other OTC: CBAUF - news) and National Australia Bank both lost around 0.7 percent.

In contrast, iron ore miner Fortescue Metals Group, soared nearly 10 percent, topping the leader board.

"There is talk Fortescue is going to be selling off its infrastructure to a Chinese group, so that is driving the stock higher," said Angus Nicholson, market analyst at IG (LSE: IGG.L - news) .

The Sydney Morning Herald, citing sources, reported that China's Hebei Iron & Steel Group and Tewoo Group have approached Fortescue about acquiring a stake in its infrastructure assets.

"But if you look at the commodities complex as a whole, it is still pretty negative. Oil and gold are at pretty low levels and with the possibility of future U.S. dollar rises, they are not looking good," Nicholson added.

Part of the reason for a bullish dollar outlook is prospect of a rise in U.S. interest rates. Views of a September hike were bolstered after Atlanta Federal Reserve President Dennis Lockhart said he would support such a move.

Those comments in part knocked Wall Street lower overnight.

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New Zealand's NZX50 share index was marginally firmer, recovering some poise after the previous day's sale of a majority stake in Contact Energy (NZSE: CEN.NZ - news) was completed.

The index was last up 0.1 percent at 5,939.36, within sight of a lifetime high set on Monday.

Contact resumed trading merely a cent below where it was before Origin Energy sold its 53 percent stake at a 7 percent discount.

Energy stocks, which had been hardest hit by Contact's sell down, were modestly higher with Meridian Energy (Berlin: 15M1.BE - news) and Mighty River Power (Stuttgart: MRY.SG - news) nudging up about 0.5 percent.

Outdoor clothing retailer and takeover target Kathmandu was up 1.2 percent but still below the takeover price being offered by home goods retailer Briscoe. Kathmandu is due to respond to the offer by the end of the week. (Reporting by Ian Chua; Editing by Kim Coghill)