Australia shares supported by banks, construction firms; gold miners fall

* Banks lead shares higher as investors chase high-yields

* Construction stocks lift after uptick in Q1

* Gold producers cap broader gains after 2 pct fall overnight (Adds analysis, quotes, stocks on the move)

By Thuy Ong and Gyles Beckford

SYDNEY/WELLINGTON, May 28 (Reuters) - Australian shares edged higher on Wednesday, supported by another record-close for the S&P 500 and interest in banking stocks, though overall gains were capped by a slide in gold producers after bullion prices dropped overnight.

A rise in the 'Big Four' banks underpinned the sector as investors chased their high yields. Westpac Banking Corp added 0.4 percent, and Commonwealth Bank of Australia (Other OTC: CBAUF - news) rose 0.2 percent to all-time highs of A$81.85. Among mid-tier banks, Bank of Queensland Ltd (Other OTC: BKQNY - news) edged 0.1 percent higher.

The S&P/ASX 200 index gained 16.6 points, or 0.3 percent, to 5,528.3 by 0206 GMT. The market finished a choppy session flat on Tuesday.

The benchmark hit a near 6-year high of 5,554.5 points on April 29, but has largely drifted sideways this month with traders blaming a lack of catalysts for the tepid performance.

"The Australian economy continues to grow at a sub-trend pace, and at the moment the market has slightly stretched valuations," said Matthew Sherwood, Head (Other OTC: HEDYY - news) of Investment Market Research at Perpetual.

"In 2012 and 2013 we had big run ups in share prices without a lot of corporate earnings growth, so 2014 is going to be that year where we get the earnings growth but we don't get much price growth," Sherwood said.

Earlier, data released from the Australian Bureau of Statistics showed construction work done nationwide in the first quarter rose 0.3 percent.

In the construction space, Leighton Holdings Ltd jumped 1.8 percent, and James Hardie Industries PLC (Other OTC: JHIUF - news) climbed 1.5 percent to 2-1/2 month highs of A$14.63.

Gold miners dropped after bullion fell 2 percent overnight, hitting Australia's top gold producer Newcrest Mining Ltd , which lost 3.7 percent, while Northern Star Resources Ltd slumped 5 percent.

Australian property group Stockland Corp Ltd upped its offer for Australand Property Group to A$2.02 billion, a month after threatening to walk away if the target rejected its original bid. Shares in Australia's no.2 property group, Stockland (Frankfurt: LN1.F - news) , added 0.8 percent, and Australand slipped percent.

Across the Tasman Sea, New Zealand shares edged higher with the benchmark NZX-50 index up 0.7 percent to 5184.08, a one-week high.

The strongest performer was transport company Mainfreight Ltd which rose 10.3 percent to a record high NZ$14.25 after reporting a 36 percent rise in full year profit on higher sales and one-off gains. It last traded at NZ$14.22.

Dairy giant Fonterra Co-operative Ltd shareholder fund was fractionally higher at NZ$6.03. It cut its initial forecast payout for the coming season by 17 percent on falling prices and higher supply, which was not as bad as some had feared. (Editing by Shri Navaratnam)