* Aussie benchmark hovers at over 11-year high
* Election driven gains offset trade tensions - analyst
* Developers, builders rise on plans to relax home loan rules (Updates to close)
By Rashmi Ashok
May 22 (Reuters) - Australian shares eked out slight gains on Wednesday, as the country's post-election optimism was dampened by worries over the risk of a protracted U.S.-China trade war.
The S&P/ASX 200 index .AXJO recovered from earlier losses to tick up 10.6 points or 0.2% to 6,510.70. The benchmark hovered around the more than 11-year highs it scaled on Monday.
Since Australia's elections results were announced on the weekend, the index has risen around 2.3%.
The United States allowed a temporary relaxation of curbs against Chinese telecom giant Huawei. The move failed to convince investors who were rattled by the sudden blacklisting of the company last week, amid already strained trade talks. don't know where to turn, but we do know the Chinese are not going to come back to the table when the U.S. is going after Chinese tech," Chris Weston, head of research at Pepperstone brokerage, said in a note.
However, analysts believe that Australian markets continue to find some support from the surprise election win by the Liberal National coalition, which has promised immediate tax cuts for 10 million middle-and low-income earners.
Despite trade tensions, "the feel-good factor from the surprise Liberal victory and proposed tax cuts should keep the markets up quite nicely over the next month or so," said Damian Rooney, director of equity sales at Argonaut.
Financials .AXFJ pared losses to end flat, after a near 8% rally over the previous two sessions.
Australia's financial regulator's move to impose additional capital requirements on some financial institutions after it found weakness in their ability to self-assess non-financial risk held back lenders.
Australia and New Zealand Banking Group ANZ.AX and National Australia Bank NAB.AX were each down 0.2%.
Miners .AXMM also barely moved, shedding early losses. Fortescue Metals Group FMG.AX ended down 1.6% as its shares traded ex-dividend.
Mining giant BHP Group BHP.AX and Rio Tinto (LON:RIO) RIO.AX reversed course to edge higher. Lithium miners Galaxy Resources GXY.AX and Pilbara Minerals PLS.AX were among top gainers, rising between 6-7%.
Property developers and building material manufacturers continued to soar, boosted by the Australian prudential regulator's proposal to ease lending criteria for home loans on Tuesday.
James Hardie JHX.AX rose 2.2%, Adelaide Brighton ABC.AX added 4.6% while property developer Stockland Corporation SGP.AX tacked on 3.8%.
New Zealand's benchmark S&P/NZX 50 index .NZ50 rose 0.2% or 21.39 points to 10,237.48.
Utilities provider Infratil IFT.NZ rose 7.1% and was the top gainer, while dairy giant a2 Milk Company ATM.NZ edged lower.