* BHP biggest drag on benchmark
* Materials fall on weaker commodities
* Banks rise after falling 1 pct in previous session
By Aditya Soni
June 26 (Reuters) - Australian shares fell on Tuesday, dragged by materials stocks after global miner BHP completed a deal with Brazilian authorities that settles a lawsuit over a 2015 dam disaster.
The S&P/ASX 200 index .AXJO fell 0.5 percent or 29.20 points to 6,181.82 by 0232 GMT. The benchmark declined 0.2 percent on Monday.
Samarco SAMNE.UL and parent companies Vale SA VALE5.SA and BHP BHP.AX have signed a deal with Brazilian authorities that settles a 20 billion reais ($5.30 billion) lawsuit related to a 2015 dam burst that killed 19 people, BHP said on Monday.
In a separate statement, BHP said the agreement sets a two-year timeline to reach a settlement over a separate 155 billion reais lawsuit, which will remain suspended while the parties continue to negotiate.
The announcements drove the world's biggest miner's stock 1.9 percent lower to a near four-week low, making it the biggest drag on the benchmark.
The wider materials sector also accumulated losses, hurt by a fall in copper and iron ore prices.
Index heavyweight Rio Tinto (LON:RIO) Ltd RIO.AX dipped 2.1 percent to its lowest since June 5, while BlueScope Steel Ltd BSL.AX dropped 3.2 percent, close to its lowest in four weeks.
Health care stocks .AXHJ also eroded the index, falling about 1.1 percent, their biggest intraday percentage drop in nearly two weeks.
Mathan Somasundaram, Blue Ocean Equities market portfolio strategist, said health care stocks had been trading at historically high price-equity ratios and were overvalued.
"What's happening now is that the market is beginning to realize that they have paid way too much for growth. Healthcare has been a beneficiary of it and there's a bit of unwinding going on."
Pharmaceutical firm CSL Ltd CSL.AX slipped 1.1 percent, while bionic ear maker Cochlear Ltd COH.AX slid 1.8 percent.
Energy stocks were also in the red, with Woodside Petroleum Ltd WPL.AX weakening 1.4 percent.
Oil prices fell overnight as investors prepared for an extra 1 million barrels per day of oil to hit markets after OPEC agreed to raise production. O/R
Financials, however, rose .AXFJ after falling 1 percent in the previous session, braking the fall in the main index.
Somasundaram said financials have underperformed massively so far this year and were now in value territory.
Top lender Commonwealth Bank of Australia CBA.AX firmed 1.1 percent, while Westpac Banking Corp WBC.AX ticked up 0.5 percent.
In New Zealand, the benchmark S&P/NZX 50 index .NZ50 fell 0.5 percent or 46.45 points to 8,949.79.
Consumer staples accounted for most of the losses, with a2 Milk Company Ltd ATM.NZ falling about 2 percent, dragging the benchmark.
($1 = 3.7753 Brazilian reais)