Australia shares falter as COVID-19 cases, U.S.-China tensions rise

* Afterpay leads tech sector’s drop

* Gold prices fall on firmer dollar

* Analyst warns of downgrade cycle if NSW locked down (Updates to close)

July 14 (Reuters) - Australian shares settled lower on Tuesday as rising coronavirus cases in the country’s most populous state and simmering Sino-U.S. tensions spooked investors.

The S&P/ASX 200 index finished 0.61% lower at 5,941.10, with the technology sector leading the retreat after U.S. tech giants, including Amazon and Microsoft , fell overnight. The benchmark index gained almost 1% on Monday.

New South Wales, Australia’s most populous state, on Monday reported 14 new COVID-19 cases, on the heels of a surge in infections in neighbouring Victoria that forced it back into lockdown last week.

“Market has V shape recovery (expectation) for Q3 and that is not going to happen with VIC (Victoria) in lockdown,” said Mathan Somasundaram, market portfolio strategist at Blue Ocean Equities.

“If NSW (New South Wales) goes into lockdown, it will be a big downgrade cycle.”

Weighing on investor sentiment, tensions grew between the United States and China. The United States on Monday rejected China’s disputed claims to offshore resources in most of the South China Sea, a move that Beijing criticised as inciting tensions in the region.

“U.S.-China tensions around COVID and now China’s claims over the South China Sea could hurt the Phase-1 trade pact and make things much more difficult for potential further deals,” said CommSec market analyst James Tao.

Technology stocks fell 4% to a near two-week low. Buy-now-pay-later firm Afterpay Ltd declined 7.23%, making it one of the top losers on the benchmark index, while Megaport Ltd lost 6.67%.

Gold stocks fell 2.32% as bullion prices were hit by a stronger dollar. Emerald Resources NL declined 7.94%, while Alacer Gold Corp shed 6.17%.

In New Zealand, the S&P/NZX 50 index rose 0.52% to 11,494.1.

Among top gainers on the New Zealand benchmark, Sanford Ltd rose 4.43%, while Chorus Ltd added 3.85%. (Reporting by Nikhil Subba in Bengaluru;)