* Banks, miners lead rally
* Sentiment buoyed by rally in U.S. shares overnight
* Index still down 6 pct YTD; on track for monthly loss
* 158 shares up, 32 down, 10 unchanged (Adds analysis, quotes, stocks on the move)
By Swati Pandey and Naomi Tajitsu
SYDNEY/WELLINGTON, Sept 16 (Reuters) - Australian shares rose 1.3 percent on Wednesday, reversing losses from the previous session, on broad-based gains across all sectors after U.S. shares rallied ahead of the highly anticipated Federal Reserve rate verdict.
The S&P/ASX 200 index .AXJO jumped 60 points to 5,078.8 by 0114 GMT. The benchmark tumbled 1.5 percent to a three-week low on Tuesday.
Despite Monday's gains, the index is still down nearly 6 percent this year so far and is trading near mid-2013 levels. It is on track for another monthly loss after its biggest decline since late 2008 in August.
Recent volatility in shares globally has unsettled investors as concerns about a global slowdown in the wake of China's market turmoil continue to weigh on sentiment, compounded by uncertainty around whether the U.S. Fed will raise interest rates for the first time in nearly a decade at its policy meeting on Sept. 16-17.
"The market still remains highly volatile but it's nice to that it has clawed back losses from yesterday," said Ben Le Brun, market analyst at OptionsXpress. "We are going to see very light trading up until Friday morning and then Asian markets will be the first to react."
Major banks led the rally on Wednesday with Commonwealth Bank CBA.AX and National Australia Bank NAB.AX up 1.9 percent and Westpac WBC.AX rising more than 2 percent.
Major miners BHP Billiton (LONDON:BLT) BHP.AX and Rio Tinto (LONDON:RIO) RIO.AX were up 1.6 and 0.8 percent respectively.
Media companies rallied for a second straight day on hopes of media deregulation under new Prime Minister Malcolm Turnbull.
Ten Network TEN.AX , Nine Entertainment NEC.AX and Seven West Media SWM.AX were among top performers on the index rising 3.6-5.6 percent.
New Zealand's benchmark NZX50 share index .NZ50 rose 15.6 points or 0.3 percent to 5,668.06, supported by gains in utilities and healthcare shares
Meridian Energy MEL.NZ rose 1.4 percent to a two-week high of NZ$2.23, while infrastructure investor Infratil IFT.NZ rose 1.3 percent. Fisher and Paykel Healthcare FPH.NZ rose 0.9 percent.
Further gains were limited by a 2 percent slide in SkyCity Entertainment.
U.S. shares jumped over one percent overnight though price action is likely to have been exaggerated by low trading volume ahead of the Fed's policy verdict on Thursday.