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By Shivangi Lahiri

March 21 (Reuters) - Australian shares ended modestly higher on Friday as supermarket giants Woolworths WOW.AX and Coles COL.AX leapt as investors cheered the lack of reform proposals that could impact earnings, though losses in healthcare and financials capped gains.

The S&P/ASX 200 .AXJO index finished 0.2% higher at 7,931.20 points, erasing some gains from earlier in the session.

The benchmark, which confirmed a correction last Thursday and fell about 9% in the previous four weeks, recovered 1.8% this week - its best week so far this year.

Shares of top grocers Woolworths and Coles surged 6.3% and 4.9%, respectively, as investors bought the shares due to the lack of aggressive reforms from the country's competition watchdog, as per analysts.

A report by the watchdog found Australia's dominant supermarkets benefited from wider profit margins at a time of rapidly increasing shelf prices and called for measures to make the retail industry fairer.

Citi analysts called the regulator's report "benign" and said no "material impact to supermarket earnings" was expected from the recommendations.

That helped the consumer staples index .AXSJ surge 3.9% and clock its best intraday gain since April 2020.

"Investors are also buying into staples stocks as downturns in the economy or high volatility have minimal impact on earnings for such stocks," said Grady Wulff, market analyst at Bell Direct, predicting the rally may continue next week.

Gains on the benchmark were capped by a 0.7% drop in healthcare stocks .AXHJ led by biotechnology giant CSL CSL.AX and medical imaging services provider, Pro Medicus PME.AX, which lost 0.5% and 6.5%, respectively.

The healthcare index had advanced more than 2% over the past three sessions.

The financials sub-index .AXFJ ended marginally lower, with Commonwealth Bank of Australia CBA.AX losing 0.2%.

Traders now await the local inflation print for February, due next week, ahead of the monetary policy decision the week after that.

New Zealand's benchmark S&P/NZX 50 index .NZ50 added 0.5% to finish at 12,113.54 points.

(Reporting by Shivangi Lahiri in Bengaluru; Editing by Mrigank Dhaniwala)

((shivangi.lahiri@thomsonreuters.com))

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