Australia shares hit 3-week highs as banks extend gains

(Adds analysis, quotes, stocks on the move)

By Ian Chua and Gyles Beckford

SYDNEY/WELLINGTON, July 16 (Reuters) - Australian shares rose for a third session on Thursday, driving a key index to its highest in over three weeks as concerns about Greece receded while investors overlooked a wobbly start to Chinese stocks.

The benchmark S&P/ASX 200 index climbed 24.9 points, or 0.4 percent, to 5,661.1 by 0230 GMT, having earlier risen as far as 5,691.2 - a high last seen on June 24.

The index has gained more than 3 percent in the past three sessions, turning around from a five-month trough of 5,383.7 a week ago.

Commonwealth Bank rose more than 1 percent to touch a two-month high of A$88.32. The stock has recovered 50 percent of its March to June drop, from a record high of A$96.69 to A$79.19, and outperformed the other major lenders with that retracement.

Shares (Frankfurt: DI6.F - news) in Rio Tinto (LSE: RIO.L - news) eased 0.2 percent after the world's second-biggest iron ore miner trimmed its full-year guidance for ore shipments.

For more individual stocks activity, click on

"July is historically, over the last five years, our best month and we obviously haven't performed for the first part of it with all the issues around China and Greece," said Evan Lucas, market strategist at IG (LSE: IGG.L - news) in Melbourne. "We're now starting to pick back up to where we should be."

Cash-strapped Greece took a further step towards securing a bailout package on Wednesday, while Chinese stocks drifted in and out of positive territory, showing no signs of the panic meltdown seen recently.

New Zealand shares pushed to a one-week high as solid gains for big-cap stocks led the market for a third session.

The benchmark NZX50 index rose as high as 5,838.3, before edging back to 5,825.0, up 0.3 percent on the day.

Improving risk sentiment and the prospect of further central bank rate cuts encouraged investors to pick up recently sold-off stocks.

Among the leaders Contact Energy (NZSE: CEN.NZ - news) was up 1.2 percent, Fletcher Building (NZSE: FBU.NZ - news) put on 1 percent, and telecommunications company Spark gained 1.1 percent.

The index of the top-10 companies, which make up more than half the market benchmark index, climbed 0.6 percent.

Price falls were generally modest, although Air New Zealand , which has risen strongly in recent sessions, suffered a 2.2 percent drop.

The Fonterra Shareholders Fund dipped 1.1 percent as the dairy co-operative said it would cut more than 500 jobs in the next couple of months with more to come as it tackles falling prices and pressure on earnings. (Editing by Richard Borsuk)