Australia shares post biggest rally in 5 weeks on Fed outlook

(Corrects day in 1st paragraph)

* Fed seen putting off first US rate hike

* Oil rises 6 pct, lifting energy stocks

* Key index in biggest gain since Feb 13

By Byron Kaye and Naomi Tajitsu

SYDNEY/WELLINGTON, March 19 (Reuters) - Australian shares rose the most in five weeks on Thursday after the Federal Reserve suggested it may raise U.S. rates later than previously thought while energy stocks followed the surging oil price higher.

The Fed downgraded its economic growth and inflation projections for the U.S., triggering a relief rally on Wall St as investors bet that any rate hike will be later rather than sooner.

"Everyone feels the Fed's not quite as aggressive and will be exercising a lot of caution going forward," said IG Markets strategist Stan Shamu.

"The rates lift-off in the middle of the year is not really the case now, and that's positive for equities all round because it looks like money will stick around for a little while longer," Melbourne-based Shamu said.

By 0133 GMT the S&P/ASX 200 index was up 1.4 percent or 83.9 points at 5938.2, its biggest percentage gain since Feb. 13 and its highest intraday level in two weeks. Every sector was up.

A 6 percent rally in the oil price overnight also helped push energy stocks higher, with Woodside Petroleum (Xetra: WOPA.DE - news) and Origin Energy each up 1.4 percent and Santos 1.8 percent firmer.

Gold giant Newcrest Mining (Dusseldorf: NMA.DU - news) led resource stocks higher after the precious metal gained overnight, jumping 6 percent. Iron ore major BHP Billiton (NYSE: BBL - news) rose 1.4 percent and Rio Tinto (Xetra: 855018 - news) added 0.2 percent.

Banks firmed amid hopes lower interest rates will translate into more home loans. Westpac Banking Corp rose 1.8 percent Commonwealth Bank of Australia (Other OTC: CBAUF - news) by 1.5 percent, National Australia Bank by 1.4 percent and Australia and New Zealand Banking Group by 1.6 percent.

Australian No. 1 department store operator Myer Holdings tumbled 9.5 percent after posting a lower-than-expected half yearly profit and downgrading its forecast for the full year.

New Zealand's benchmark NZX50 index edged up 13.1 points or 0.2 percent to 5,859.84, supported by gains in consumer-related and telcom shares.

Online auction site Trade Me Group rose 2.1 percent after data showed strong demand for housing related services, raising optimism about its property services.

Further index gains were clipped by a 2.3 percent slide in Contact Energy (NZSE: CEN.NZ - news) while transport firm Mainfreight slipped 1.1 percent after saying it expected full-year earnings growth to be smaller than last year's. (Editing by Richard Borsuk)