Australia shares edge higher as iron ore rebound stokes hopes

* Iron ore rise gives optimism

* Trading volume low in holiday season (Adds analysis, quotes, stocks on the move)

SYDNEY/WELLINGTON, Jan 5 (Reuters) - Australian shares rose on Monday as a rebound in the iron ore spot price and China's return from holidays encouraged investors to buy across the board.

A media report that mining giant Rio Tinto (Xetra: 855018 - news) will embark on a $5 billion share buyback added to the upward momentum in thin trade during the Australian summer holiday season.

"The volumes are very low, way below average, so any move is exaggerated, on the upside and the downside," Quay Equities managing director David Reynolds said.

After a sluggish lead from Wall St, the S&P/ASX 200 index opened lower before recovering in the early session to be up 0.25 percent or 13.47 points at 5449.9.

Iron ore player Fortescue Metals Group led resources higher, gaining nearly 2 percent as the commodity's spot price continued a recent rebound from multi-year lows.

Smaller Atlas Iron jumped 8.7 percent, the biggest gainer on the market, following a rise in the metal's price. Gold producers Newcrest Mining and Evolution Mining added 3.5 percent and 6 percent respectively.

Other metals prices fell, weighing on large players Rio Tinto and BHP Billiton (NYSE: BBL - news) , down 0.2 percent and 0.4 percent.

Energy companies were stronger as investors bet they would benefit from a lower Australian dollar despite falls in the commodity's spot price. Oil Search rose 2.5 percent and oil and gas producer AWE jumped 5 percent after saying an Indonesia-based project in which it has a stake received government backing.

Banks were mixed, with Australia and New Zealand Banking Group flat while Commonwealth Bank of Australia (Other OTC: CBAUF - news) and National Australia Bank each added 0.2 percent.

Mining contractor Transfield Services tumbled 4 percent as investors continued selling after Spain's Ferrovial SA quit a takeover proposal last month.

New Zealand's benchmark NZ50 share index edged up 5.2 points or 0.1 percent to 5,573.56, hovering near a lifetime closing high of 5,577.20 as investors bought shares in blue-chip companies which sold off in late 2014.

New Zealand Oil and Gas rose 3.17 percent as it shook off an ongoing slide in global oil prices.

Travel-related shares began the new year on a strong note, with Auckland Airport rising 2.6 percent while Air New Zealand rose 2.4 percent. The national carrier and New (KOSDAQ: 160550.KQ - news) Zealand's largest airport operator continue to benefit from hopes for strong tourism and travel industries in 2015.

(Reporting by Byron Kaye and Naomi Tajitsu)