* Energy stocks gain 1% as Middle East tensions lift oil
* Only 25 basis point Fed rate cut expected at end of July
* Miners gain, more stimulative policies in China eyed (Updates to close)
By Niyati Shetty
July 22 (Reuters) - Australian shares declined marginally on Monday, pulled down by financial and healthcare stocks, as investors anticipated a smaller-than-expected interest rate cut by the U.S. Federal Reserve.
The S&P/ASX 200 index .AXJO closed down 0.14% at 6,691.20. It had gained 0.8% on Friday.
Optimism that there would be an aggressive rate reduction by the U.S. central bank faded on Friday after the New York Fed walked back from earlier dovish comments. MKTS/GLOB
Expectations of a 50 basis point trim at the July 30-31 Fed meeting were also scaled back as the Wall Street Journal reported the central bank was ready for a quarter-basis point cut, not a bigger one. will likely trade with a more risk cynical bent this week as the less dovish Fed narrative continues to sink in," Stephen Innes, managing partner at Vanguard Markets, said in a note.
"Investors remain wholly captivated by the looser the policy, the better the risk opportunities."
Financials .AXFJ fell slightly with biggest lenders Commonwealth Bank of Australia CBA.AX and Westpac Banking Corp WBC.AX retreating 0.3% and 0.1%, respectively.
Export-reliant health stocks .AXHJ ended down 1.2% as drug maker CSL Ltd CSL.AX lost 1.3% and medical devices developer Cochlear Ltd COH.AX declined 1.2%.
The real estate sector .AXPJ was also down, as Goodman Group GMG.AX fell 1.5% and Dexus DXS.AX receded 2.5%.
Monday's higher oil prices - rooted in concern that Iran's seizure of a British tanker may lead to supply disruptions - gave energy stocks .AXEJ a boost. O/R
Beach Energy BPT.AX added 5.3% and Oil Search OSH.AX advanced 1.7%.
Mining stocks .AXMM climbed on hopes of more stimulative policies in China, the biggest buyer of Australia's raw materials.
China's central bank is likely to introduce more fiscal spending and liquidity infusions in the coming months to shore up its slowing economy, but sees more aggressive action like interest rate cuts as a last resort, Reuters sources said. miners BHP Group BHP.AX and Rio Tinto (LON:RIO) RIO.AX advanced 0.7% and 0.8%, respectively.
New Zealand's benchmark S&P/NZX 50 index .NZ50 closed up 0.67%, or 71.54 points, to 10,824.69.
Utilities firm Meridian Energy MEL.NZ gained 1% and dairy products maker a2 Milk Company ATM.NZ rose 1.7% to a record closing high.