Australia shares rise 1.2 pct on earnings optimism

SYDNEY, July 27 - Australian stocks rose to their highest close in eight-and-a-half months on Monday on optimism the earnings season could turn out to be better than expected, with global miner Rio Tinto <RIO.AX> leading the way up.

Gains were broad based and, with Asian stocks doing well and U.S. futures up, the market was set for another upbeat day on Tuesday, analysts said.

"I am sure there will be some sad stories in the earnings season, but I am not at all sure that there's going to be enough sad stories to push the market down too much," said Bill Bishop, private client adviser at ABN AMRO Morgans.

He added any earlier worries over the upcoming earnings season were now already factored into the market.

"The Americans have had the experience of it not being as bad as they thought," Bishop said.

The benchmark S&P/ASX 200 index <.AXJO> rose 49.8 points at 4,139.6, based on the latest available data, its highest close since Nov. 6.

New Zealand's benchmark NZX 50 index <.NZ50> rose 36.8 points or 1.2 percent to 2,998.0.

Rio Tinto jumped 3.8 percent to A$59.74, outpacing rival BHP Billiton <BHP.AX> which rose 0.9 percent to A$37.85.

Tim Schroeders, portfolio manager at Pengana Capital, said Rio shares were outperforming BHP partly because investors were becoming less nervous about the detention of four Rio staff in China and what that means for its business.

"The market may have been a bit negative on Rio with the detentions coming on the heels of the large rights issue," Schroeders said.

Smaller miners staged even bigger rises following continued talk that Chinese miners were looking to invest in Western Australia's resources sector.

Sundance Resources <SDL.AX> jumped 19.4 percent to A$0.19, while Atlas Iron <AGO.AX> gained 5.8 percent to A$1.93 and Mincor Resources <MCR.AX> rose 5.7 percent to A$2.05.

The top banks were also in demand, with No. 3 lender Commonwealth Bank <CBA.AX> adding 1.1 percent to A$40.17 and the other three major banks rising between 0.7 and 0.8 percent.

The nation's biggest investment bank, Macquarie Group <MQG.AX> gained 4.9 percent to A$41.95 ahead of its annual meeting on Wednesday, where it is expected to give a trading update.

Consumer-related stocks also gained on improved investor optimism, with electrical retailer JB Hi-FI <JBH.AX> up 3.0 percent to A$16.34 and the country's second-biggest supermarket retailer Wesfarmers <WES.AX> up 3.3 percent to A$26.04.