[SYDNEY] Australian shares recovered from early losses to stand higher by mid-session on Monday as investors flooded back into banks following a sell-off and some company profit announcements beat expectations.

Banks have faced heavy selling for months because of concerns they will be required to raised capital under tough new rules, and on Friday Australia and New Zealand Banking Group sent jitters through the sector by saying it raised A$2.5 billion (S$2.56 billion).

On Monday shares in top lender Commonwealth Bank of Australia fell following media reports that it would make a similar announcement, but the bank issued a statement saying it had made no decision on raising capital and the sector recovered to positive territory.

After dipping at the open, the S&P/ASX 200 index reversed course to be up 0.7 per cent or 35.9 points at 5510.7 by 0235 GMT. On Friday, following the ANZ announcement, the benchmark fell 2.4 per cent, its biggest one-day fall in three years.

"The banks have returned to favour," said James McGlew, executive director of corporate stockbroking at broker Argonaut. "The yield game is back on and the punters were perhaps forecasting CBA to come out immediately with an issue (but) everybody's decided to jump back on the horse." ANZ was up 1.6 per cent, recouping some of its 7 per cent tumble on Friday. CBA rose 1.4 per cent, Westpac Banking Corp added 1.1 per cent and National Australia Bank was up 1.3 per cent after it reported a 9 per cent rise in third-quarter profit.

Consumer discretionary retailers fared well after home electronics chain JB Hi-Fi beat annual profit forecasts and announced a share buyback. Its shares rose 9 per cent.

Rival Harvey Norman rose 3.6 per cent. Department store Myer Holdings added 3 per cent.

Rubber gloves and condoms maker Ansell fell 20 per cent, the biggest decliner on the market, after it met profit forecasts but warned weakness in the US economy and unfavourable currency rates will drive down earnings in the next finanical year.

New Zealand's NZX50 share index was 0.1 per cent lower at 5,862.71 as the market marked time ahead of the company reporting season.

Auckland International Airport fell 1.9 per cent and Fletcher Building and casino operator Sky City also lost ground.

Telecommunications company Spark was up 1.4 per cent.

The investment fund based on dairy giant Fonterra was up 1.6 per cent as the forecast payout for farmers was slashed by 27 per cent because of a slump in global prices but it said it would soften the hit on farmer incomes with interest free loans.

REUTERS