* Energy stocks up as much as 1.3% as oil gains
* a2 Milk at record high, rises 1.4%
By Niyati Shetty
July 22 (Reuters) - Australian shares inched up on Monday as stronger resource prices supported energy and mining stocks, but expectations for a smaller-than-expected U.S. rate cut curbed investor optimism.
The S&P/ASX 200 index .AXJO edged up 0.1% to 6,706.80 by 0138 GMT, after gaining 0.8% on Friday.
"Global equity markets continue to have their ups and down based on the perceived degree of accommodative central bank policy," said Stephen Innes, managing partner at Vanguard Markets.
With tensions in the Middle East escalating after the Iranian military seized a British oil tanker late last week, oil prices climbed on supply concerns. O/R
Woodside Petroleum added up to 1%, while peer Oil Search Ltd OSH.AX gained 2.3%, giving the energy sector .AXEJ a boost.
Persistent strength in iron ore prices also saw mining giants BHP Group BHP.AX and Rio Tinto (LON:RIO) RIO.AX add as much as 1.2% and 0.6%, respectively.
Fortescue Metals Group FMG.AX rose 2% ahead of its quarterly output results due on Thursday.
The resource sector is hoping that a slowdown in China's economy could be halted by more stimulative policies as the country is Australia's largest importer of 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. stocks .ACFJ opened lower but were inching higher by 0138 GMT, with Westpac Banking Corp WBC.AX gaining 0.2% and Commonwealth Bank of Australia CBA.AX down 0.2%.
Investors were cautious as U.S. stocks fell on Friday after a Wall Street Journal report indicated that while the central bank was ready for a quarter-basis point reduction in key rates at its July 30-31 meeting, it was not prepared to make a bigger 50-basis point cut. .N
The healthcare index .AXHJ fell as much as 1.3% with drug maker CSL Ltd CSL.AX losing 1.5% and medical devices developer Cochlear Ltd COH.AX retreating 1.2%.
New Zealand's benchmark S&P/NZX 50 index .NZ50 was up 0.2% to 10,774.82 and was set for a fourth straight session of gains.
a2 Milk Company ATM.NZ was the best performer on the index and was at a record high, gaining as much as 1.4%. Australian broker Morgans on Friday raised the dairy product maker's price target and upgraded their results guidance.