Australia shares fall to 3-1/2 week lows as Iraq worries weigh on blue chips

* Australian market at 3-1/2 week lows, bluechip stocks drag

* Oil bounces on risk to supplies, gold up on safe-haven appeal (Adds analysis, quotes, stocks on the move)

By Thuy Ong and Gyles Beckford

SYDNEY/WELLINGTON, June 13 (Reuters) - Australian shares fell 0.9 percent on Friday to 3-1/2 week lows, dragged down by the top 20 blue-chip stocks after Wall Street lost ground overnight on concerns about growing violence in Iraq.

Stocks were also pressured by disappointing U.S. retail sales and jobless claims data.

The S&P/ASX 200 index tumbled 44.9 points to 5,383.9 by 0148 GMT, its biggest one-day percentage loss since May 19. The benchmark fell 0.5 percent on Thursday and looked set for a loss of 1.3 percent on the week.

All 'Big Four' banks lost ground, with Westpac Banking Corp losing 1.2 percent and Commonwealth Bank of Australia (Other OTC: CBAUF - news) down 0.6 percent to A$81.36. CBA had touched an all-time record high of A$82.68 earlier in the week.

Among miners, BHP Billiton Ltd and Rio Tinto Ltd (Xetra: 855018 - news) lost 1.3 percent and 2.5 percent each. Iluka Resources (Other OTC: ILKAF - news) Ltd dropped 2.3 percent.

U.S. President Barack Obama told reporters that he refused to rule out U.S. action in Iraq against Sunni Islamist militants who have surged out of the north toward Baghdad, threatening to divide the country and establish their own jihadist state.

Oil and gold shares bucked the downward trend as oil prices jumped to nine-month highs and gold climbed 1 percent as fighting in Iraq intensified.

Among oil companies, Australia's top oil and gas producer Woodside Petroleum Ltd (Other OTC: WOPEF - news) climbed 1.8 percent, Drillsearch Energy Ltd jumped 6.2 percent, while Santos Ltd added 0.9 percent.

Bullion miners Newcrest Mining Ltd and Medusa Mining Ltd tacked on 2.2 percent and 4.1 percent respectively.

"It's what's happening in Iraq and the U.S. direction overnight, the ASX is more or less in line with that", John Zhu, a portfolio manager at Triple 3 Partners (Other OTC: PGPHF - news) , an independent investment manager.

"Unrest in Iraq - people will be uneasy about that, it's probably a chance for investors to take a breather."

Whitehaven Coal Ltd scrambled 2.1 percent higher after saying it would halt forest clearing at its Maules Creek mine after anti-coal activists sought court action to stop the work, but the coal mine's March 2015 deadline would not be impacted.

Australian based gold miner Oceana Gold Ltd said the recent strong lift in share prices was probably because of higher gold prices. Shares were in a trading halt and the company last traded up 7.4 percent at NZ$3.35, a 14-month high on the New Zealand index, while on the ASX, they were up 8 percent to near 3-month highs of A$3.10.

The New Zealand stock market fell 0.5 percent in thin volumes.

The benchmark NZX-50 index was at 5,169.09 points, but is virtually unchanged for the week.

Of the top stocks, Auckland International Airport Ltd was 2.2 percent lower, and software company Xero Ltd was down 1.9 percent.

(Reporting by Thuy Ong; Editing by Kim Coghill)