* Financials drag the benchmark
* Gains in miners offset losses, Telstra also up sharply (Updates to close)
Jan 29 (Reuters) - Australian shares fell on Tuesday as investors viewed a U.S. move to level criminal charges against China's Huawei as potentially reducing the chance of Washington and Beijing reaching a durable resolution to their trade war.
The S&P/ASX 200 index .AXJO dropped 0.5 percent or 31.40 points to 5,874.20 at the close, pulling back from a 0.7 percent gain on Friday. Markets were shut on Monday for Australia Day.
The United States on Monday announced criminal charges against China's Huawei HWT.UL Technologies Co Ltd, escalating a fight with the world's biggest telecommunications equipment maker. The indictment came as Chinese delegates were already in Washington to prepare for the latest round of trade talks. MKTS/GLOB
Investor sentiment was already shaken after industrial bellweather Caterpillar (NYSE:CAT) CAT.N and chipmaker Nvidia Corp NVDA.O flagged a weaker Chinese demand, igniting fresh fears of a slowdown in Australia's biggest trade partner China.
The financial sector .AXFJ slipped 1.7 percent to a near three-week low and was the biggest drag on the benchmark.
The country's "Big four" banks shed between 1.6 percent to 2.3 percent each.
Healthcare stocks .AXHJ also piled pressure on the main index, slumping 2.5 percent, with CSL Ltd CSL.AX declining 2.3 percent, and Australia-listed shares of medical devices maker ResMed Inc RMD.AX plunging 10.4 percent.
Still, sustained strength in Chinese iron ore futures helped to contain broad market losses, pushing the metals and mining index .AXMM 2.3 percent higher to a near four-month high. IRONORE/
The world's biggest miner BHP Group BHP.AX gained 2.1 percent while rival Rio Tinto (LON:RIO) RIO.AX rose 3.8 percent.
Teleco Telstra Corp Ltd TLS.AX led gains on the benchmark, rallying 7.8 percent, after competitor TPG Telecom TPG.AX cancelled plans for a Huawei driven rival mobile network.
Across the Tasman sea, New Zealand's benchmark S&P/NZX 50 index .NZ50 closed 1.2 percent lower or 108.140 points to finish the session at 9,006.380.
Billing services provider Gentrack group GTK.NZ declined 5.2 percent and was the top percentage loser.