Reuters Finance News, Australia

(Adds details, comments)

By Geraldine Chua

SYDNEY, May 9 (Reuters) - Australian shares rose 0.85 percent to their highest level in over three months on Friday, as upbeat earnings at National Australia Bank Ltd (ASX: NAB.ax) lifted the financials, while resource firms rose on strong commodity prices.

Boosting sentiment in the banking sector, NAB, Australia's top lender by assets, met market forecasts with an 8 percent rise in first-half profit and raised its interim dividend, driving its shares up 4 percent to a three-month high [ID:nSYD11706].

"Everyone's gaining a bit of confidence at this point with NAB's results giving a lot of support," said Lucinda Chan, division director at Macquarie Equities.

"While most of the banks have come up with extra provisioning, that shouldn't come as a surprise because we're coming from very difficult conditions at the moment. The fact that NAB is going to underwrite their dividend re-investment plan is all positive stuff."

But other market watchers said there were still concerns about the outlook for bank profits over the coming year.

"Everyone realises they won't be able to write the number of loans and mortgages at the rates they previously were charging, and there is a feeling that could cause their profits to slow in that area," said Lisa Jarvis, private client adviser at ABN AMRO Morgans.

Underscoring that cautious view, NAB raised its charge for bad and doubtful debts by 86 percent and warned of slowing credit growth.

The benchmark S&P/ASX 200 index .AXJO rose 48.6 points to 5,771.8, based on the latest available data, a level not seen since Feb. 5 and adding to a near 1 percent rise in the previous session.

The index, which rose 1.25 percent on the week to log its third straight week of gains, has now gained 13.5 percent from its 2008 closing low seen on March 18. However, it is still down about 9 percent since the start of the year after rising 11.8 percent in 2007.

New Zealand's benchmark NZX-50 index .NZ50 fell 0.7 percent, or 24.43 points, to 3,601.17, taking its total losses so far this year to 10.9 percent. Top stock Telecom Corp Ltd (NZX: TEL.nz) finished down 3.5 percent at NZ$3.83.

BANKS SHINE

NAB rose 4 percent to A$32.24, the highest level since Feb. 13. Among the other top banks, Australia and New Zealand Banking Group Ltd (ASX: ANZ.ax) gained 3.7 percent to A$23.00 while Westpac Banking Corp (ASX: WBC.ax) rose 1.1 percent to A$25.97.

Resource firms rose after oil prices CLc1 hit a fresh record above $124 a barrel, while gold XAU= also rose. (See: [O/R] and [GOL/]).

BHP Billiton Ltd (ASX: BHP.ax) , the world's top miner and Australia's top oil and gas producer, added 3.5 percent to A$46.50, its main rival and takeover target, Rio Tinto Ltd (ASX: RIO.ax) , rose 0.8 percent to A$146.52.

Oil and gas firm Roc Oil Co (ASX: ROC.ax) rose 2.3 percent to A$2.26, while gold miner Lihir Gold LGL.AX was up 2.7 percent at A$3.09.

On the downside, private hospitals operator Healthscope Ltd (ASX: HSP.ax) extended early losses to fall nearly 3 percent to A$5.23 after it reiterated that underlying earnings in the second-half would at least match the pre one-off earnings posted in the first-half.

AWB Ltd (ASX: AWB.ax) , Australia's main wheat exporter, fell 6.4 percent to A$3.66.

JP Morgan cut its rating on AWB to underweight from neutral, saying that the recent rise in the firm's share price was overdone given the risk of a capital raising in the near term. ($1=A$1.06) (Editing by James Thornhill)