Australia shares bide time near 17-mth high; IAG weak

(Updates with comments, stocks on the move)

MELBOURNE Dec 14 (Reuters) - Australian shares hovered close to 17-month highs on Friday, rising 0.2 percent as investors hoped for a solid reading in Chinese data due later to underscore a recent recovery in iron ore prices.

HSBC's early reading of China's December manufacturing activity is released at 0145 GMT, offering fresh clues to the state of China's economy.

"We are probably eyeing that China data that is due out, we have seen signs of stabilisation from China lately and there are some expectations we will see a solid figure," said IG Markets analyst Stan Shamu.

"The recovery in iron ore is also helping," he added. Iron ore prices this week rebounded to their highest levels since July.

However, gains were capped by a high currency over $1.05 that has raised worries about the cost of Australian exports.

The major banks were also firmer as investors continued to switch into high-yielding stocks. Commonwealth Bank led the sector with a rise of 0.6 percent.

The benchmark S&P/ASX 200 index rose 7.4 points to 4,590.2 at 0020 GMT, not far off this week's intraday high and 17-month peak of 4,603.5, after slipping one point on Thursday.

New Zealand's benchmark NZX 50 index rose 0.2 percent to 3,982.9.

STOCKS ON THE MOVE

* Shares in insurer IAG fell 1.9 percent to A$4.72 after the group said it will sell its loss-making UK operations, including selling Equity Red Star to buyout firm Aquiline Capital Partners for about A$130 million.

* Shares in Caltex Australia Ltd jumped 3.3 percent to A$19.54 after the company said it expects to return to a full-year profit before one-off items in the range of A$455 million to A$475 million, after posting a loss in 2011. (Reporting by Victoria Thieberger; Editing by Richard Pullin)