* Material stocks hit 1-month low; IAG (LON:ICAG) slumps on hailstorm claims
* Rio Tinto (LON:RIO), BHP on track for worst day in seven weeks
By Shreya Mariam Job
Jan 24 (Reuters) - Australian shares rose nearly half a percent on Friday on the back of financials, while trading was cautious as fears mounted about the coronavirus outbreak in China and its potential economic fallout.
The World Health Organisation declared the virus that has killed 25 people in China and infected more than 800 "an emergency in China" but stopped short of declaring the epidemic of international concern.
Being part of the Asia Pacific region, the Australian market is seen as defensive, said Jun Bei Liu, a portfolio manager at Tribeca Investment Partners.
Being a little bit more isolated in terms of the virus outbreak and the potential economic disruption it could cause, capital inflows have increased, she added.
The S&P/ASX 200 index .AXJO rose 0.4%, or 25.30 points, to 7,113.50 by 0104 GMT after a 0.6% drop on Wednesday. It was up 0.7% for the week, heading for its third straight weekly gain.
Financial stocks .AXFJ were the biggest gainers with a rise of more than half a percent. All the "Big Four" banks traded higher.
Some economists have pushed back their expectations for a rate cut in the near term after Thursday's strong jobs data, said Liu. is a relief for financials given their margins will be less under pressure this year," she added.
Shares of Commonwealth Bank of Australia CBA.AX and National Australia Bank NAB.AX gained 0.9% and 0.8%, respectively.
Meanwhile, Insurance Australia Group IAG.AX dropped 6.4% to its lowest level in over 11 months after the company trimmed its full-year insurance margins due to hailstorm claims.
Industrial stocks traded higher, with the benchmark's top percentage gainer Downer EDI DOW.AX recovering some of its losses from the previous session as investors bought into the stock on expectation of a potential upside in the longer term.
Healthcare stocks .AXHJ firmed, with heavyweight CSL Ltd CSL.AX gaining 1.5%.
Meanwhile, concerns about the Chinese virus weighed on commodity prices.
The mining sub-index .AXMM dropped 1.4% in its biggest intraday drop in one month, dragged by lower iron ore and steel prices.
Index heavyweights Rio Tinto RIO.AX and BHP Group BHP.AX fell as much as 3.1% and 1.9% respectively, heading for their worst day in seven weeks.
Lynas Corp LYC.AX , however, rose as much as 3.9% after the rare earths miner said it was on track to get its processing licence renewed by Malaysia in March. the Tasman Sea, New Zealand's benchmark S&P/NZX 50 index .NZ50 was little changed at 11,893.94.
Fletcher Building FBU.NZ rose 1.4%, while Genesis Energy GNE.NZ dropped over 1%.
($1 = 1.4622 Australian dollars)