Indian shares drop 2.3% after early rally

Mumbai: Indian shares fell 2.3 per cent on Tuesday after an early rally gave way to deeper concerns about sluggish consumer spending that has forced companies such as steel and truck makers to cut output.

The slide gathered mom-entum after European shares dropped, putting the focus on the global econ-omic gloom and rising withdrawals by foreign funds from emerging markets like India.

Financials, which had initially led the main index up more than 3 per cent, swung the other way and ended lower on worries about possible defaults in a slowing economy.

"Sentiment remains weak because economic fundamentals are not stable," said Nilesh Doshi, head of research at Techno Shares & Stocks. "The (early) spike was only because of correlation to global markets."

Asian bourses had climbed after the US government's rescue plan for Citigroup relieved wary investors.

The 30-share BSE index shed 2.33 per cent, or 207.59 points, to 8,695.53. It had initially risen as high as 9,182.80, but is down 57.1 per cent so far this year.

Expected growth

The Organisation for Economic Cooperation and Development said yesterday India's economy was expected to expand about 7 per cent in 2008 and 2009 before recovering to above 8 per cent in 2010 as world growth picks up.

India's economy, Asia's third largest, has grown at 9 per cent or more in the past three fiscal years.

Twenty-three of the BSE index's components fell, while in the broader market losers led gainers 1.5:1 on moderate volume of 225 million shares.

Foreign funds have pulled out a net $13.6 billion (Dh50 billion) from Indian shares this year, contributing to the slide.