Australia shares down in rocky trade as China, U.S. worries hit earnings season

* China stocks still volatile

* U.S (Other OTC: UBGXF - news) . market overdue correction

* Earnings season adds to choppy trade (Adds analysis, quotes, stocks on the move)

SYDNEY/WELLINGTON, Aug 26 (Reuters) - Australian shares fell in volatile trade on Wednesday as concerns about a selloff in U.S. and Chinese markets outweighed hopes for a recovery in commodities prices.

A mixed bag of local earnings reports and several large stocks trading ex-dividend also contributed to the unusually rocky session.

After tumbling as much as 1.6 percent in early trading, the S&P/ASX 200 index rebounded into positive territory as Chinese stocks opened higher following rate cuts by the central bank.

But the recovery was short-lived as Chinese indexes resumed their slide, and by 0240 GMT the Australian benchmark down 42.4 points or 0.8 percent at 5,096.9.

"The reality is there are a lot of contributors to this," said CMC (BSE: CMC6.BO - news) chief market strategist Michael McCarthy, noting that a correction in U.S. stock markets had been overdue.

Overnight, the Dow Jones Industrial Average fell more than 1 percent after rallying sharply earlier in the session.

Banks and industrial property players led the declines with Australia and New Zealand Banking Group down 1.4 percent and Westpac Banking Corp and National Australia Bank both down 0.8 percent.

Property developers Mirvac Group (Stuttgart: MJB.SG - news) and Dexus Property Group were down 2.2 percent.

Health stocks also fell after posting disappointing earnings. Primary Health Care was 5 percent lower while hospital operator Healthscope (Frankfurt: 2H1.F - news) dropped 1.4 percent.

Telecommunications giant Telstra (Hamburg: TSTA.HM - news) , which traded ex-dividend this week, lost 1 percent.

Grocery majors Woolworths and Coles owner Wesfarmers were down 1.4 percent and 0.6 percent respectively.

Resources companies were mixed.

BHP Billiton (NYSE: BBL - news) firmed 0.4 percent as bargain hunters picked up the stock following a hefty selldown in the lead-up to the profit slump it posted a day earlier. Rival Rio Tinto was down 0.3 percent and iron ore producer Fortescue Metals Group fell 1.1 percent.

New Zealand's benchmark NZX50 index eased 0.2 percent to 5,600.70 in early trade, but losses slowed after a deep sell-off seen earlier in the week pulled the index down to 5,607.31, its weakest close since early January.

Losses were led by a 1.9 percent slide in Sky TV after analysts cut their price targets for the television service provider a day earlier.

Air New Zealand slipped 1.1 percent, as investors brushed off an announcement by the national carrier of record annual profits and bought shares in other companies sold off heavily in recent days.

Further index losses were offset by gains in telecoms company Spark, up 1.8 percent, and power retailer Meridian, which climbed 1.9 percent.

Retirement village operator Metlifecare rose 1.6 percent after it reported a 78 percent rise in annual profit.

Medical equipment maker Ebos jumped 3.8 percent after reporting a 15 percent rise in annual profit.

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(Reporting by Byron Kaye and Naomi Tajitsu; Editing by Kim Coghill)