Australia shares close flat as virus worries offset Sydney Airport's boost

* Sydney Airport closes 34% higher on $16.7 bln buyout bid

* Tabcorp falls 5% on Lotteries & Keno unit spin-off

* Energy stocks up 2% (Updates to close)

July 5 (Reuters) - Australian stocks pared early gains to close flat on Monday as worries about rising COVID-19 cases in the country’s most populous state, New South Wales, countered a surge in shares of Sydney Airport after a $16.7 billion buyout bid.

The S&P/ASX 200 index ended flat at 7,315 points after rising as much as 0.5% earlier in the session.

Sydney Airport soared 34% after a group of infrastructure investors proposed one of Australia’s biggest-ever buyouts, a A$22.26 billion bid for Australia’s only listed airport operator.

“The rise in COVID-19 numbers in New South Wales has weighed on the market a bit, after the morning trade,” said Mathan Somasundaram of Deep Data Analytics.

New South Wales on Monday said the next two days would be critical in deciding whether a two-week anti-coronavirus lockdown in Sydney will have to be extended amid rising Delta variant cases.

Additionally, Australian dollars were weaker ahead of the Reserve Bank of Australia’s policy meeting, which could see a course change in its massive stimulus programme.

Limiting gains on the benchmark was Tabcorp Holdings , which fell 5%, as the gambling firm said it would spin off its Lotteries & Keno business into a listed entity, drawing an end to a company-wide review it undertook earlier this year as interest built for a separate unit.

ASX 200 Energy index rose 2%, boosted by Australia’s largest independent coal miner Whitehaven Coal Ltd, which rose 3.3%, and fuel supplier Ampol Ltd, which gained 3%.

Technology stocks fell 1%, as AI-data developer Appen Ltd fell 5.1% and software provider Nuix Ltd lost 4.9%.

In New Zealand, the benchmark S&P/NZX 50 index rose 0.8% to 12,812.3 points.

Reporting by Savyata Mishra in Bengaluru; Editing by Amy Caren Daniel