* Investors eye G20 for trade cues
* Higher yields whack defensives
* Robust commodity prices support miners
By Rushil Dutta and Renju Jose
June 27 (Reuters) - Australian shares were muted on Thursday as more modest U.S. rate cut expectations took the sheen off defensive stocks, but many investors kept to the sidelines ahead of this weekend's Group of 20 meeting in Japan.
The S&P/ASX 200 index .AXJO was up 0.5 points at 6,641 points by 0205 GMT. The benchmark was 0.26% lower on Wednesday.
Global financial markets and China's major trading partners are hoping for signs of a thaw in testy U.S.-China trade relations when the countries' presidents meet in Osaka on Saturday.
Donald Trump said on Wednesday that a trade deal with Xi Jinping was possible this weekend but warned he was prepared to impose U.S. tariffs on virtually all remaining Chinese imports if talks fail. Federal Reserve commentary earlier this week dampened expectations of a half percentage point rate cut in Fed's July policy meeting. A 25 basis point cut, however, is still being seen as a sure bet.
A less aggressive Fed and hopes of progress in Sino-U.S. trade relations, pushed up U.S. Treasury yields on Wednesday. The yield on Aussie papers also edged up on Thursday. US/
Defensive stocks, which are often seen as bond proxies, were the biggest losers on the day as a result, with real estate and industrial stocks taking the worst beating.
Real estate stocks Cromwell Property Group CMW.AX , Charter Hall Retail REIT and CQR.AX and Stockland Corp SGP.AX were the day's biggest decliners, losing in a range of 3.8%-6.8%
"There is a rebalancing of portfolios," said James McGlew, executive director of corporate stock broking at Argonaut.
"We are seeing a rotation out of the real estate industrial trust and other defensive stocks like healthcare, and those funds appear to be heading on a foray into material stocks, now continuing to see remarkably strong iron ore prices."
Overnight, the prices of major export commodities like oil and copper hit their highest levels in weeks. MET/L IRONORE/ O/R
Miners Rio Tinto (LON:RIO) RIO.AX and BHP Group BHP.AX advanced 1.8% and 1.2%, respectively, despite Dalian iron ore prices falling for a third straight session on Wednesday.
The mining sub-index .AXMM gained as much as 1%, hitting its highest level in nearly 8 years.
Meanwhile, higher oil prices boosted energy stocks .AXEJ , which rose 0.9%.
Financial stocks .AXFJ rose 0.2%, with Commonwealth Bank of Australia CBA.AX , the country's biggest lender, adding almost half a percent.
Earlier in the day, CBA said it would review how it handles customer data as part of an agreement with Australia's information commissioner after the bank admitted to losing records in the past. L4N23Y064
New Zealand's benchmark S&P/NZX 50 index .NZ50 was flat at 10,404.69.