* Australia sees biggest daily spike in virus deaths over weekend
* Lynas Corp surges 12% on contract with Pentagon
* Gold stocks rise as bullion gains on U.S.-China tensions
By Arpit Nayak
July 27 (Reuters) - Australian shares eked out modest gains on Monday as gold stocks advanced onheightened Sino-U.S. tensions and positive comments from a central bank official assuaged fears about the economic fallout from a second wave of coronavirus infections.
A senior Reserve Bank of Australia official said it was ready to buy government bonds to support the country's virus-hit economy if market conditions worsen considerably.
Australia recorded its biggest spike in COVID-19 deaths on Sunday as a second wave of infection sweeps across Victoria, the country's most populous state next to New South Wales.
The S&P/ASX 200 index was up 0.2% at 6,037.4, as of 0105 GMT. The benchmark closed 1.16% lower on Friday.
However, broader sentiment was subdued as a diplomatic tussle between the two largest economies heated up after Beijing ordered the United States to shut its consulate in Chengdu late last week. The move came as a tit-for-tat response to Washington's closure of China's Houston consulate.
Gold stocks registered gains as bullion prices were set to hit a record high on solid safe-haven demand amid rising Sino-U.S. tensions, helping the metals and mining sub-index trade in positive territory.
Australia-listed shares of AngloGold Ashanti climbed as much as 8.4%, while Newcrest Mining added 2.8%.
Shares of Lynas Corp surged 12% after the rare earths miner said it signed a contract with the U.S. Department of Defense to start initial design work on a separation facility in Texas.
Woodside Petroleum and Santos led declines in the energy index, which shed 1.5%.
Financials edged 0.4% lower, with Insurance Australia Group extending losses from last week after flagging a 70% plunge in cash earnings for 2020.
New Zealand's benchmark S&P/NZX 50 index inched 0.1% lower to 11,620.79.
Local shares of Australia and New Zealand Banking Group slid 0.6%, while a2 Milk fell 1.1%.
Reporting by Arpit Nayak in Bengaluru, Editing by Sherry Jacob-Phillips