Australia shares fall as banks, BHP Billiton head south

* Concerns about bank dividends

* BHP spin-off weighs on resources (Adds analysis, quotes, stocks on the move)

SYDNEY/WELLINGTON, May 18 (Reuters) - Australian shares fell on Monday as investors sold bank stocks amid concerns about their ability to boost dividends and as mining giant BHP Billiton led resources lower after its demerger.

BHP slumped 7 percent, the biggest loser on the market, after its spin-off, South32, began trading at A$2.15, at the lower end of the expected range of A$2.00 to A$3.00.

Rival Rio Tinto fell 0.5 percent amid concerns the government will begin an inquiry into both firms' activities that have contributed to a fall in the iron ore price.

The S&P/ASX 200 index fell 45.1 points or 0.8 percent to 5,690.4 by 0242 GMT.

"The real weight this morning is the banks," said Michael McCarthy, chief strategist at CMC Markets.

"The major driver of investment in this sector over the last three years has been the dividend yield, and with some concerns about increased capital costs (because of new regulatory requirements) without a dividend to prop them up we're seeing them take the weight with selling."

Commonwealth Bank of Australia (Other OTC: CBAUF - news) fell 1.4 percent, Australia and New Zealand Banking Group, dropped 1.8 percent and National Australia Bank was down 0.5 percent. Investment bank Macquarie Group was nearly 3 percent lower.

Wesfarmers, owner of supermarket giant Coles, was down 0.8 percent while larger rival Woolworths was down 0.9 percent. Paint manufacturer DuluxGroup (Other OTC: DULUF - news) lost 4 percent after reporting a fall in half yearly profit.

New Zealand shares touched a 10-day high as planned tough new rules on residential property were seen supporting the case for lower interest rates, bolstering the outlook for stocks.

The benchmark NZX50 share index trimmed its gains to sit 0.3 percent higher at 5,775.34, led by the top-10 stocks , which make up more than half of the index.

Telecommunications provider Spark, Contact Energy (NZSE: CEN.NZ - news) , casino operator Sky City and Fletcher Building all posted modest rises.

Technology company Wynyard Group was one of the bigger gainers, rising 3.5 percent, after it pointed to higher revenue on new sales and progress on expanding in the United (Shenzhen: 000925.SZ - news) States.

Kiwi Property Group, the market's biggest listed property investor, was on a trading halt, after reporting a rise in annual net profit and said it planned to issue new shares to raise NZ$151.9 million ($112.76 million) to pay down debt and fund expansion.

For more individual stocks activity click on

(Reporting by Byron Kaye and Gyles Beckford; Editing by Kim Coghill)