* Metals and mining index posts best close in 7-months
* Rio Tinto (LON:RIO), BHP hit multi-year highs
* Air New Zealand flags weaker earnings (Updates to close)
Jan 30 (Reuters) - Australian shares edged higher on Wednesday, as a surge in iron ore prices boosted mining stocks, though investors remained cautious ahead of Sino-U.S. trade talks and the Federal Reserve's policy review due later in the day.
The S&P/ASX 200 index .AXJO closed 0.2 percent, or 12.50 points, higher at 5,886.70. The benchmark fell 0.5 percent on Tuesday.
U.S. and China are set to begin a round of trade talks in Washington, the outcome of which is awaited eagerly in Australia, which is China's biggest trade partner.
While comments overnight about easing tensions by Apple (NASDAQ:AAPL) CEO Tim Cook alleviated some investor concerns, confidence remains clouded by Washington's criminal charges against China's Huawei earlier this week. to investor caution was the Fed's upcoming policy review, at which it is expected to leave rates unchanged. Investors will look for any clues on future policy direction from Fed Chairman Jerome Powell's comments.
Locally, the metals and mining sector .AXMM soared 2.7 percent and was the biggest boost to the benchmark, posting its best close in seven months.
Mining stocks advanced as Chinese iron ore futures continued their run higher after world's biggest iron ore miner Vale SA VALE3.SA announced an output cut following a deadly damn disaster in Brazil. IRONORE/
Global miner BHP Group BHP.AX hit a seven-year high in the session while rival Rio Tinto firmed 4.5 percent, posting its best close in almost eight years.
Elsewhere, financial stocks .AXFJ slipped 0.3 percent and were the biggest drags on the benchmark. The "Big Four" banks lost between 0.04 percent to 0.4 percent each.
Meanwhile, Qantas Airways Ltd QAN.AX was among top decliners, with its shares falling 5.8 percent after its codeshare partner Air New Zealand Ltd AIR.NZ flagged weaker earnings for 2019.
Across the Tasman sea, Air New Zealand dived 14.4 percent on the local bourse and was the biggest loser in the benchmark.
New Zealand's S&P/NZX 50 index .NZ50 dropped 0.9 percent or 80.860 points to finish the session at 8,925.52.