* Banks stage comeback as investors seek bargains
* CBA soothes concerns about capital raising
* Profit reports bring wild swings in either direction (Adds analysis, quotes, stocks on the move)
SYDNEY/WELLINGTON, Aug 10 (Reuters) - Australian shares recovered from early losses to stand higher by mid-session on Monday as investors flooded back into banks following a sell-off and some company profit announcements beat expectations.
Banks have faced heavy selling for months because of concerns they will be required to raised capital under tough new rules, and on Friday Australia and New Zealand Banking Group ANZ.AX sent jitters through the sector by saying it raised A$2.5 billion.
On Monday shares in top lender Commonwealth Bank of Australia CBA.AX fell following media reports that it would make a similar announcement, but the bank issued a statement saying it had made no decision on raising capital and the sector recovered to positive territory.
After dipping at the open, the S&P/ASX 200 index .AXJO reversed course to be up 0.7 percent or 35.9 points at 5510.7 by 0235 GMT. On Friday, following the ANZ announcement, the benchmark fell 2.4 percent, its biggest one-day fall in three years.
"The banks have returned to favour," said James McGlew, executive director of corporate stockbroking at broker Argonaut.
"The yield game is back on and the punters were perhaps forecasting CBA to come out immediately with an issue (but) everybody's decided to jump back on the horse."
ANZ was up 1.6 percent, recouping some of its 7 percent tumble on Friday. CBA rose 1.4 percent, Westpac Banking Corp WBC.AX added 1.1 percent and National Australia Bank NAB.AX was up 1.3 percent after it reported a 9 percent rise in third-quarter profit.
Consumer discretionary retailers fared well after home electronics chain JB Hi-Fi JBH.AX beat annual profit forecasts and announced a share buyback. Its shares rose 9 percent.
Rival Harvey Norman HVN.AX rose 3.6 percent. Department store Myer Holdings added 3 percent.
Rubber gloves and condoms maker Ansell ANN.AX fell 20 percent, the biggest decliner on the market, after it met profit forecasts but warned weakness in the U.S. economy and unfavourable currency rates will drive down earnings in the next finanical year.
New Zealand's NZX50 share index .NZ50 was 0.1 percent lower at 5,862.71 as the market marked time ahead of the company reporting season.
Auckland International Airport AIA.NZ fell 1.9 percent and Fletcher Building FBU.NZ and casino operator Sky City SKC.NZ also lost ground.
Telecommunications company Spark SPK.NZ was up 1.4 percent.
The investment fund based on dairy giant Fonterra FSF.NZ was up 1.6 percent as the forecast payout for farmers was slashed by 27 percent because of a slump in global prices but it said it would soften the hit on farmer incomes with interest free loans.