Australia shares inch higher, investors cautiously optimistic of U.S. deal

(Adds analysis, quotes, stocks on the move)

SYDNEY, Oct (KOSDAQ: 039200.KQ - news) 16 (Reuters) - Australian shares turned higher on Wednesday morning as hopes grew of an 11th hour deal to reopen the U.S. government and avoid a debt default.

Stocks reversed course after a U.S. senate aide said senate leaders could announce an agreement soon to raise the debt ceiling and reopen the government. Discussions were underway in which the Republican-controlled House could help speed up passage of any deal before Thursday's deadline.

The S&P/ASX 200 index advanced 5.6 points to 5,265.0 by 0103 GMT. The benchmark rose 1.0 percent on Tuesday and has fallen in five of the past ten sessions as investors fretted over the brinkmanship in Washington.

Big-cap stocks underpinned the market with Westpac Banking Corp adding 0.1 percent and Australia and New Zealand Banking Group rising 0.2 percent.

Among miners, Rio Tinto (Xetra: 855018 - news) climbed 1.1 percent after solid production numbers released on Tuesday, while rival BHP Billiton Ltd rose 1 percent.

"Rio Tinto is helping the mining sector lift and the market is focusing on the mining sector at this point," said Steven Daghlian, stock market analyst at Commonwealth Securities.

The local benchmark hit a five-year intra-day high of 5,314.3 on September 27 but has pulled back since the partial U.S. government shutdown on Oct 1.

"Market sentiment is incredibly frayed and entrenched in reactionary measures that will bend either side," said Andrew May, a sales trader at CMC Markets in a note to clients.

"If the U.S. government does default on its debt obligations, it could be catastrophic for global markets."

If lawmakers cannot reach a deal ahead of the deadline, Washington will have to rely on incoming revenue and about $30 billion in cash reserves to pay its many debt obligations.

CSL Ltd (Other OTC: CMXHF - news) climbed 1.4 percent after the blood products maker said it planned to buy back shares of up to A$950 million ($905 million).

Meanwhile, gold miners were down in line with lower prices for the yellow metal as safe-haven bids slowed on hopes U.S. lawmakers would hash out a last-minute agreement. St Barbara Ltd (Other OTC: STBMF - news) lost 1.8 percent while Medusa Mining Ltd dropped 2 percent.

Retailers also lost ground with department store Myer Holdings Ltd down 1.2 percent and electronics and entertainment company JB Hi-Fi Ltd off 1.7 percent

New Zealand's benchmark NZX 50 index rose 0.1 percent to 4,754.2.

(Reporting by Thuy Ong; Editing by Shri Navaratnam)