(Adds analysis, quotes, stocks on the move)
SYDNEY, Oct 3 (Reuters) - Australian shares rose 0.5 percent on Thursday, buoyed by mining stocks after a recovery in metals prices but gains were capped by Wall Street’s falls amid the ongoing U.S. government shutdown.
Mining stocks underpinned the market after copper rose off a one week low. BHP Billiton Ltd climbed 1.1 percent while rival Rio Tinto Ltd added 1 percent. Iluka Resources Ltd rallied 2.4 percent.
Gold producers Newcrest Mining Ltd and Evolution Mining Ltd jumped 2.5 percent and 3 percent respectively after bullion rose more than 2 percent as a fall in U.S. equities sparked bargain-hunting.
The S&P/ASX 200 index rose 26.6 points to 5,242.2 by 0100 GMT, and has been trading sideways for most of this week after a slump on Monday. The benchmark rose 0.2 percent on Wednesday.
“It’s a fairly broad-based strength actually, the banks and resources are doing okay,” said Damien Boey, equity strategist at Credit Suisse.
“That seems to be the thematics, but it’s not a huge move either way.”
Stocks with high dividend yields also gained, including the Big Four banks, which yield on average 5.4 percent each. National Australia Bank rallied 1.3 percent while Westpac Banking Corp added 0.8 percent.
Top telecommunications provider Telstra Corporation Ltd , which yields 5.7 percent, gained 0.6 percent.
Elsewhere, Leighton Holdings Ltd slumped 8.8 percent to a one-month low of A$17.86 after media reports that corruption and bribery were widespread at the company under its previous management.
Also adding a dampener to local sentiment, Wall Street retreated overnight, on the second day of a partial U.S. government shutdown, as political wrangling in Washington raised investor concerns that the stoppage could be prolonged.
So far investors have been wagering that a deal would be reached in time to avoid lasting damage to the economy, although another fight over the debt ceiling still looms.
“This week has seen a muted Australian market as investors sit back and watch the U.S. debt funding/debt ceiling negotiations unfolding,” said Chay Flack, equities dealer at CMC Markets Stockbroking.
“There isn’t any panic yet, but if no agreement is reached beefore the October 17 deadline, we may find ourselves in the calm before the storm.”
New Zealand’s benchmark NZX 50 index slipped 0.2 percent or 11.5 points to 4,757.4.
Reporting by Thuy Ong; Editing by Eric Meijer