* Telecom stocks falter, sheds Thursday's advance
* Weaker commodity prices hurt material stocks
* Australian, NZ shares down for day, but gain for the week (Updates to close)
By Nikhil Nainan
Aug 31 (Reuters) - Australian shares fell on Friday, as investors feared an escalation in U.S.-China trade frictions and sold telecom shares that advanced a day earlier on a merger deal announced by TPG and Vodafone's Australian unit.
The S&P/ASX 200 index .AXJO closed 0.5 percent lower at 6,319.5, but added 1.2 percent for the week.
Telecom stocks suffered the heaviest losses, a day after rising as TPG Telecom TPM.AX and Hutchison Telecommunications (Australia) HTA.AX , Vodafone Group's VOD.L Australian unit, agreed to merge into a larger third player in the sector.
TPG dropped more than 7 percent while Hutchison plunged more than 25 percent.
Telstra TLS.AX , which gained on Thursday, shed 4 percent. It faces a review into its copper network by the Australian Competition and Consumer Commission. reported that U.S. President Donald Trump is ready to impose tariffs on $200 billion more in Chinese imports as soon as a public comment period on the plan ends next week. data that showed China's manufacturing sector unexpectedly picked up in August, after a two-month slide, did little to boost confidence, even in the resource space, as trade tensions were on investors' minds. is Australian largest trading partner.
Trump's latest salvo saw commodity prices slip, undermining material stocks, resulting in the sector index .AXMM falling 1.7 percent. MET/L
"It is going to continue to potentially trouble the base metal complex. Saying that, we have a natural Aussie dollar hedge which helps out but uncertainty is no friend to the market," Damian Rooney, director of equity sales at Argonaut.
"I think the tariff issue is not going away in the short term."
Global miners BHP BHP.AX and Rio Tinto (LON:RIO) RIO.AX fell 1.7 percent and 0.6 percent, respectively.
The only sector eking out some gains was health care. The weaker Aussie dollar helped prop up shares in a sector reliant on exports and overseas operations. AUD/
Primary Health Care PRY.AX and Ramsay Health Care RHC.AX topped the gains, up 3 percent and 2.2 percent.
New Zealand's benchmark S&P/NZX 50 index .NZ50 fell 0.3 percent, or 26.68 points to 9,313.2, but closed the week 1.7 percent higher. It was the market's fourth straight weekly gain.
Shares of the world's biggest dairy exporter Fonterra Co-operative Group FCG.NZ declined 0.2 percent. It cut its farmgate milk price for 2018-2019 by 3.6 percent. Milk Company ATM.NZ and Synlait Milk SML.NZ fell 0.6 percent and 2.3 percent, respectively.