Australian shares breach 7,000 level on Sino-U.S. trade deal

* New Zealand shares rise to all-time closing level

* Financial stocks rise to two-month closing high

* Iron ore, rare earth miners weigh on mining sector (Updates to close)

Jan 16 (Reuters) - Australian shares surged past the 7,000 level for the first time ever on Thursday, as demand for risky assets increased after China and the United States signed a deal to defuse their trade war that has roiled financial markets over the last 18 months.

The S&P/ASX 200 index rose 0.7% to a record close of 7,041.80, after a 0.5% gain on Wednesday. Across the Tasman Sea, the New Zealand benchmark S&P/NZX 50 index also posted a record closing high, climbing 0.5% to 11,737.86.

“As the ASX 200 reaches the 7,000 level, it will likely trigger some investors to review their portfolios, causing them to become more active when it comes to investing,” Anthony Doyle, cross-asset specialist at Fidelity International, said in a note.

“Behavioural economists will tell you that big, round numbers (like 7,000) can have a large influence on investor emotion and behaviour.”

The rally came as markets cheered the signing of the U.S.-China trade deal that will roll back some tariffs and boost Chinese purchases of certain American goods.

The long-drawn trade conflict has rattled global financial markets, led to a slowdown in world economic growth, and struck recession alarms.

“The signing ... should allay worries further as U.S.-China trade policy is seemingly now on cruise control until after the election,” RBC Capital Markets analysts said in a note to clients.

Australia’s financial stocks, which account for almost one-third of the local benchmark index, rose about 1% to a two-month closing high.

Commonwealth Bank of Australia advanced about 1% to its highest close since Aug. 3, 2017, and was the best performer among the ‘big four’ lenders.

Mining shares settled marginally higher, with gains in gold stocks offsetting losses in iron ore and rare earths miners.

Both BHP Group, the world’s largest miner, and peer Rio Tinto eased about 0.1%.

Lynas Corp, the only major proven producer of rare earths outside China, closed flat, after China agreed to buy two types of the 17-version metal stable - scandium and yttrium - from the United States as part of the initial trade deal.

The energy sub-index edged down 0.1%, dragged by industry heavyweight Santos, which fell 1.2%, and Oil Search, which tumbled 0.8%.

However, Woodside Petroleum, the country’s largest listed oil and gas explorer, gained 0.6% after it posted a near 7% rise in fourth-quarter production and forecast higher output for 2020. (Reporting by Nikhil Subba in Bengaluru; Editing by Subhranshu Sahu)