* Energy stocks gain 1% as Middle East tensions lift oil
* Only 25 basis point Fed rate cut expected at end of July
* Miners gain, more stimulative policies in China eyed (Updates to close)
By Niyati Shetty
July 22 (Reuters) - Australian shares declined marginally on Monday, pulled down by financial and healthcare stocks, as investors anticipated a smaller-than-expected interest rate cut by the U.S. Federal Reserve.
The S&P/ASX 200 index closed down 0.14% at 6,691.20. It had gained 0.8% on Friday.
Optimism that there would be an aggressive rate reduction by the U.S. central bank faded on Friday after the New York Fed walked back from earlier dovish comments.
Expectations of a 50 basis point trim at the July 30-31 Fed meeting were also scaled back as the Wall Street Journal reported the central bank was ready for a quarter-basis point cut, not a bigger one.
“Markets will likely trade with a more risk cynical bent this week as the less dovish Fed narrative continues to sink in,” Stephen Innes, managing partner at Vanguard Markets, said in a note.
“Investors remain wholly captivated by the looser the policy, the better the risk opportunities.”
Financials fell slightly with biggest lenders Commonwealth Bank of Australia and Westpac Banking Corp retreating 0.3% and 0.1%, respectively.
Export-reliant health stocks ended down 1.2% as drug maker CSL Ltd lost 1.3% and medical devices developer Cochlear Ltd declined 1.2%.
The real estate sector was also down, as Goodman Group fell 1.5% and Dexus receded 2.5%.
Monday’s higher oil prices - rooted in concern that Iran’s seizure of a British tanker may lead to supply disruptions - gave energy stocks a boost.
Beach Energy added 5.3% and Oil Search advanced 1.7%.
Mining stocks climbed on hopes of more stimulative policies in China, the biggest buyer of Australia’s raw materials.
China’s central bank is likely to introduce more fiscal spending and liquidity infusions in the coming months to shore up its slowing economy, but sees more aggressive action like interest rate cuts as a last resort, Reuters sources said.
Global miners BHP Group and Rio Tinto advanced 0.7% and 0.8%, respectively.
New Zealand’s benchmark S&P/NZX 50 index closed up 0.67%, or 71.54 points, to 10,824.69.
Utilities firm Meridian Energy gained 1% and dairy products maker a2 Milk Company rose 1.7% to a record closing high. (Reporting by Niyati Shetty in Bengaluru; Editing by Richard Borsuk)