* Miners drop as iron ore prices slump to near 20-month low
* Banks offer some support in a sideways moving market (Adds analysis, quotes, stocks on the move)
By Thuy Ong and Gyles Beckford
SYDNEY/WELLINGTON, May 29 (Reuters) - Australian shares edged down on Thursday, with losses in miners hobbling early trade as investors were cautious after iron ore prices fell to a 20-month low and Wall Street retreated from record highs.
The Sydney market has been largely held to a tight range in recent weeks, reflecting an uneven global economic recovery as strong U.S. data is offset by worries about slowing growth in China -- Australia's biggest export market -- and deflation fears in the eurozone.
"All data is showing China's slowdown is very obvious at the moment and the whole market is worried," said Biyi Cheng, head of Asia-Pacific dealing at City Index in Sydney.
"The mining sector is under pressure - if China demand is going down, that will effect profits significantly this year."
The benchmark iron ore spot price fell and held near a 20-month low below $100 a tonne for the past seven trading days.
Blue-chip miners BHP Billiton Ltd and Rio Tinto Ltd dropped 1.2 percent and 1.8 percent respectively. World no.4 iron ore miner Fortescue Metals Group Ltd lost 2.1 percent, while steelmaker Arrium Ltd fell 1 percent.
The S&P/ASX 200 index eased 5.4 points, or 0.1 percent, to 5,522.4 by 0231 GMT after touching a session low of 5,503.6. The benchmark added 0.3 percent on Wednesday.
On Wall Street, the S&P 500 snapped a four-session losing streak on Wednesday to end just shy of a third straight record closing high.
The Australian benchmark touched a near 6-year high of 5,554.5 on April 29, and has traded mostly sideways for May as the slump in iron ore prices hit resource stocks, though overall market losses have been contained by demand for high yielding bank stocks.
Australian and New Zealand Banking Group added 0.3 percent, and Commonwealth Bank of Australia eked out a gain of 0.1 percent to touch record highs of A$82.02.
Some traders said data showing a weaker-than-expected drop in Australian private new capital expenditure probably gave some support to the market on expectations it will continue to keep the central bank focused on supporting the economy, with rate hikes some way off.
Toll Holdings Ltd soared 4.6 percent to 3-month highs of A$5.51 after announcing a restructure it says is "expected to generate annual savings in the range of A$10 million to A$12 million commencing in FY 2015".
Shares in Westfield Group and Westfield Retail Trust were both in a trading halt. At its AGM, Westfield said approximately 98 percent of security holders are in favour of restructuring the business, adding it "believes strongly that separating the business will create greater value for investors over time".
New Zealand's benchmark NZX 50 index slipped 0.1 percent to 5,176.3.
Clothing retailer Postie Plus Ltd was in a trading halt, ahead of what is expected to be an announcement about a form of capital injection
(Reporting by Thuy Ong; Editing by Shri Navaratnam)