* Set for fourth straight monthly gain
* RBA seen holding cash rate at record low - Reuters poll
* Lynas jumps 5.4% on record Q2 sales revenue
Jan 29 (Reuters) - Australian shares jumped more than 1% on Friday, led by a recovery in banks and miners, tracking overnight Wall Street gains as fears over fallout from hedge funds selling long positions to cover shorts waned.
The S&P/ASX 200 index .AXJO was up 1.1% at 6,725.70 by 2350 GMT, its best session since Jan. 19, after ending about 2% lower on Thursday. But it was on track to rise 1.7% in January, its fourth straight monthly gain.
Overnight, all major U.S. indexes rebounded, pushed by a strong start to earnings season and easing fears over hedge funds selling their long positions after GameStop Corp (NYSE:GME) GME.N and AMC Entertainment AMC.N tumbled following a recent meteoric rise. .N
Investors' focus is now on the Reserve Bank of Australia's policy meeting next week, where it is likely to hold its cash rate at a record low, as well as extend its A$100 billion ($76.76 billion) quantitative easing programme. miners .AXMM were the top boosts to the benchmark, jumping 1.3%, with heavyweights BHP Group BHP.AX and Rio Tinto (LON:RIO) RIO.AX gaining 1.3% and 0.9%, respectively.
Lynas Rare Earths LYC.AX soared 5.4%, after the world's largest producer of rare earths outside China posted record high second-quarter sales revenue. .AXFJ rose nearly 1%, with all the 'Big Four' banks jumping up to 1%.
The country's No. 2 lender National Australia Bank NAB.AX advanced up to 1.1% on acquisition of nearly 82% stake in an online banking platform 86 400 Holdings for up to A$220 million. .AXHJ and technology firms .AXIJ also rose up to 1.7% and 2.9%, respectively.
In New Zealand, the benchmark S&P/NZX 50 index .NZ50 was up as much as 1.5% at 13,279.96. It was set to gain 0.8% for the month.
Financials and utilities pushed the index higher, with NZ-listed shares of Westpac WBC.NZ rising 2.2% and electricity generator Meridian Energy MEL.NZ 3.3%.
($1 = 1.3028 Australian dollars)