Australia shares edge down to near 4-wk lows; banks, energy down

* Iraq crisis, sliding iron ore prices dim mood

* Oil sector down as investors prepare to switch to WPL as Shell (LSE: RDSB.L - news) sells stake (Adds analysis, quotes, stocks on the move)

By Thuy Ong and Naomi Tajitsu

SYDNEY/WELLINGTON, June 17 (Reuters) - Australian shares declined slightly on Tuesday and hovered near 4-week lows on worries about sliding iron ore prices, the threat of U.S. air strikes in Iraq and an escalating dispute over Russian gas supplies to Ukraine.

U.S. and Iranian officials conferred about the Iraqi crisis on the sidelines of a meeting in Vienna, sources said. Meanwhile, Washington said it could launch air strikes if needed to quell the Sunni Islamist rebellion that has roiled the region.

The mining sector made the biggest dent on the market, with world no.4 iron ore miner Fortescue Metals Group Ltd falling 3.2 percent, while blue-chips BHP Billiton Ltd and Rio Tinto Ltd (Xetra: 855018 - news) each dropped 0.9 percent.

Spot iron ore fell below $90 a tonne to its lowest since September 2012, reflecting plentiful supply and tighter credit that has slowed purchases by Chinese mills despite a more than 30 percent plunge in prices this year.

The S&P/ASX 200 index slipped 8.4 points, or 0.2 percent, to 5,403.9 by 0213 GMT. The benchmark rose 0.1 percent on Monday.

The energy sector was also hard hit as investors pulled out of oil stocks in anticipation of a large parcel of Woodside Petroleum Ltd shares flooding the market. Oil Search (Frankfurt: OIS.F - news) Ltd fell 1.8 percent and Santos Ltd declined 1.7 percent.

Royal Dutch Shell (Xetra: R6C1.DE - news) launched a long-awaited sell-down of its stake in Woodside, looking to reap about $5.73 billion. Shares in Woodside were on a halt and are due to resume trading on Wednesday.

"My guess is that people are switching out of the other oil plays to invest into the Woodside placement," said Shannon Rivkin, director of Rivkin Securities in Sydney.

"I think the recent run for Woodside has prompted some institutional shareholders to take interest in it."

Banks extended their losses, with Commonwealth Bank of Australia slipping 0.2 percent and National Australia Bank losing 0.3 percent.

Support for the market came from the listed property sector, with Westfield Group (Other OTC: WEFIF - news) and Westfield Retail Trust climbing 1.4 percent and 1.1 percent, respectively, ahead of Friday's vote on Westfield Group's A$70 billion restructure.

New Zealand's benchmark NZX-50 index edged up 4.16 points to 5,182.96, supported by slight gains in infrastructure management company Infratil which rose 0.85 percent as investors picked up shares following its slide the previous day.

Air New Zealand inched up 0.2 percent to NZ$2.26 after it announced it would increase its stake in Virgin Australia to 25.99 percent as it competes for Australia's domestic market with the ailing Qantas.

Shares in the company hovered near a 6 1/2-year high of NZ$2.29 hit last week.

(Editing by Shri Navaratnam)