* Banking sector climbs, CBA touches record highs
* Miners regain some ground after from last week's selloff
* Quiet trading seen as U.S. closed for Memorial Day holiday (Adds analysis, quotes, stocks on the move)
By Thuy Ong and Gyles Beckford
SYDNEY/WELLINGTON, May 26 (Reuters) - Australian shares advanced modestly on Monday, bolstered by gains in banks and a recovery in resources stocks following a selloff last week.
The resources sector, hit the previous week by a slump in iron ore prices, regained ground as copper prices rose, with bellwether miners BHP Billiton Ltd and Rio Tinto Ltd adding 0.4 percent and 0.8 percent, respectively.
"With the Memorial Day holiday in the U.S. today, it will likely be a quiet start, with commodity prices in focus," Scott Schuberg, CEO at Rivkin Securities, said in a note to clients.
"It will be a great test to see whether this soft (iron ore) price can spur demand or whether our exporters will be pushing on a piece of string," he added.
Among other miners, Iluka Resources Ltd gained 0.6 percent and Lynas Corporation Ltd soared 11.5 percent to A$0.15. Shares in Lynas have been on a steady decline since 2011's A$2.50 high.
The S&P/ASX 200 index was up 0.3 percent or 18.1 points at 5,510.9 by 0136 GMT. The benchmark added 0.2 percent on Friday and gained 0.3 percent last week, its third consecutive week of gains.
The benchmark has drifted sideways for most of May after hitting a near six-year high of 5,554.5 on April 29.
The Big Four banks, which have been in demand from investors chasing their relatively high yields, were mostly higher on Monday. Australia and New Zealand Banking Group rose 0.5 percent and Commonwealth Bank of Australia gained 0.3 percent to hit a record of A$81.56. National Australia Bank bucked the trend, slipping 0.1 percent.
Elsewhere, Australia's biggest communications provider Telstra Corporation Ltd lost 0.8 percent. The high-yielding stock, with dividend yields of 5.3 percent, had touched a nine-year high last week.
Regis Resources ltd dropped 7 percent to a 3-1/2-year low of A$1.59 after several investment firms cut their ratings on the company.
Sundance Energy Australia Ltd jumped 3.5 percent after the company said it has signed a purchase and sale agreement in the United States.
Sai Global Ltd jumped 18 percent to a two-year high. Australian private equity firm Pacific Equity Partners said on Monday it had offered to buy the risk management and standards compliance business for up to A$1.1 billion ($1 billion) and take it private.
In New Zealand, the share market was subdued with little movement among the leading stocks and the benchmark NZX-50 index flat at 5,151.53.
The biggest moves were among small-cap stocks, with children's clothing retailer Pumpkin Patch Ltd falling 6 percent to NZ$0.47 after its warning late on Friday of an expected further fall in operating earnings.
Pacific Edge Ltd rose 5 percent to NZ$1.04 after the biotech company said it had signed a deal to sell its non-invasive bladder cancer test to U.S. company MultiPlan.
Corporate travel company Serko Ltd unveiled plans to list on the NZX main board next month through a NZ$22 million public offering of new shares and sell-down of existing stakes. (Editing by Chris Gallagher)