* BHP jumps more than 5% to over 10-month high
* Pot stocks cheer cannabis reclassification by U.N.
* NZ shares extend losses into a third session (Updates to close)
By Pranav A K
Dec 3 (Reuters) - Australian shares settled higher on Thursday as a rally in iron ore prices and a report that China will allow some long held-up coal shipments from Australia lifted heavyweight mining stocks.
The mining index .AXMM soared 4.6% to its highest in more than eight years, with disappointing output forecasts from Brazilian miner Vale SA VALE3.SA adding fuel to an iron ore price rally driven mainly by robust demand in top steel producer China and partly by supply concerns. Tinto RIO.AX , the world's biggest iron ore miner, surged up to 7.2% to its highest since May 2008 and was the biggest boost to the benchmark, while Fortescue Metals Group FMG.AX jumped 13.9% to a record high.
The S&P/ASX 200 index .AXJO closed 0.4% higher at 6,615.3, extending gains into a third session.
"It's really about the iron ore price today," said Henry Jennings, a senior analyst and portfolio manager at Marcustoday Financial Newsletter.
"There was some concern out there that this trade spat with China, with wine being the latest casualty, would escalate. But Vale's production downgrade pushed the bulls back into iron ore."
Coal producers jumped on a report that China was set to allow a shipment of Australian thermal coal into the country, despite a ban on such imports in place amid escalating tensions between Beijing and Canberra. Group Ltd BHP.AX , the world's biggest listed miner with exposure to both iron ore and coal, jumped more than 5% to its highest in over 10 months.
Elsewhere, Australia-listed pot stocks found support in the United Nations removing cannabis from the most tightly controlled category of narcotic drugs. services firm Macquarie Group MQG.AX added 0.2% after announcing the acquisition of U.S.-based investment management firm Waddell & Reed Financial Inc WDR.N for $1.7 billion. the Tasman Sea, New Zealand's benchmark S&P/NZX 50 index .NZ50 fell for a third straight session, closing 0.6% lower at 12,648.9.