(Adds stocks movement, analyst comments)
* S&P/ASX200 posts biggest percentage gain in 8 days
* Banks, miners advance on short-covering
* U.S. data, China liquidity assurances aid sentiment
* Uncertainty over slowing China growth, Australia's politics
SYDNEY, June 26 (Reuters) - Australian shares snapped a four-day losing streak and rose 1.6 percent on Wednesday, after Wall Street rallied on improved investment and housing data and China's central bank moved to calm fears over a potential banking crisis.
But underlying concerns over slower growth in China and political uncertainty in Canberra continued to hold Australian investors back, pulling the index off an intra-day high.
The S&P/ASX 200 index added 75.7 points to 4,731.7, the biggest one-day percentage gain in eight days. The index, which rose to an intraday high of 4,749.7 Wednesday, fell 0.3 percent on Tuesday.
"There is certainly a lot of nervousness and uncertainty in our market, you can see that from reaction in recent days to what happened in overseas markets," said Greg Fraser, head of research at Kimber Capital in Sydney.
Australian stocks have been hit hard in recent sessions by concerns about the U.S. Federal Reserve's plan to cut back on its massive stimulus, with a cash crunch in China adding to investor fears.
The People's Bank of China (PBOC) said late on Tuesday it had helped some banks and was ready to act again as the lender of last resort for those caught in a short-term squeeze.
Australian stocks took comfort from the PBOC's move, with both banks and miners bouncing back on short-covering, said James McGlew, executive director of corporate stockbroking at Argonaut in Perth.
Global miners BHP Billiton Ltd and Rio Tinto Ltd jumped 2.6 percent and 3.3 percent respectively after commodities prices recovered on easing fears about China's liquidity problem.
Banks also joined the rally, with top lender Commonwealth Bank of Australia rising 1.8 percent.
The country's biggest phone company Telstra Corp Ltd jumped 2.9 percent.
Some analysts said that there is still underlying concerns over the surge in volatility in Chinese interbank lending rates.
While China's central bank pledged to prevent any lasting credit crunch, mainland stocks kept slipping as investors braced for tougher conditions in the world's second-largest economy.
"I don't think anybody is thinking this is a spring break for us, it's still tough out there," said Argonaut's McGlew.
Foreign funds had been selling off Australian stocks as they pulled out of emerging markets, McGlew added.
"We are obviously leading into an election which will hopefully at least give us some direction there," he said.
Political uncertainty heightened on Wednesday as Australian Prime Minister Julia Gillard called for a caucus vote on her leadership later in the day, with supporters of former leader Kevin Rudd trying to oust her ahead of the scheduled September election.
Linc energy soared 11.7 percent to A$0.91, after it reiterated to the stock exchange on Tuesday that it planned to restructure its coal division to focus on its oil and gas production assets and could work with partners.
Discovery Metals Ltd plunged 18.8 percent to a 3-1/2 year low, as the Botswana-focused copper miner was still in the process of finding a buyer after its former suitor scrapped the bid.
New Zealand's benchmark NZX 50 index jumped 1.8 percent to 4,393.6.
(Reporting by Maggie Lu Yueyang; Editing by Shri Navaratnam)