Indian shares gain 2.6% as crude prices decline

Bangalore: Indian shares surged 2.6 per cent on Tuesday to their highest close in more than a month, led by ICICI Bank and HDFC Bank after oil prices fell to a three-month low, easing the pressure on inflation.

But analysts were unconvinced about the strength of the gains amid withdrawals by overseas funds and lingering worries about the health of the global economy and financial sector.

ICICI rose 8.2 per cent to Rs693.30, posting its biggest single-day gain in about two weeks, and smaller rival HDFC Bank closed up 6.8 per cent at Rs1,184.35 on hopes the pace of inflation would slow down and ease upward pressure on rates.

The banking sector index climbed 6.7 per cent.

"We are not completely out of the bearish sentiment as global cues continue to be uncertain," said K.K. Mital, head of portfolio management services at Globe Capital.

The main 30-share BSE index rose 2.63 per cent, or 383.20 points, to 14,961.07, its highest close since June 19. It opened 0.1 per cent lower and then fell as much as 0.3 per cent in early deals.

All but four of the index's components rose.

"It's a short-term spike and shouldn't be seen as a reversal in trend," said Mital.

Oil, India's biggest import, fell to $118 a barrel, a three-month low, as investors focused on rising Opec supply and declining demand in the United States and Europe.

Soaring inflation

India's inflation has more than doubled to nearly 12 per cent since late February mainly on soaring oil prices, prompting the central bank to tighten the monetary policy aggressively.

"A cooling off in oil and commodity prices will definitely provide comfort to the market because they are responsible for inflationary pressure," Mital said.

Shares in automobile and real estate jumped on hopes borrowing costs would come down and spur demand.

Top car maker Maruti Suzuki rallied 7.4 per cent to Rs614.40, utility vehicle and tractor maker Mahindra & Mahindra surged 5.5 per cent to Rs548, while realty DLF rose 7.7 per cent to Rs553.15.

In the broader market, 1,776 gainers led 923 losers on volume of 442 million shares.

Amitabh Chakraborty, president of equities at Religare Securities, said sluggish foreign interest was a formidable hurdle for the market to sustain a rally.

Foreign funds have pulled out $6.9 billion worth of shares so far this year. In 2007, they invested $17.4 billion, helping the index rally 47 per cent to record highs.

The benchmark is down about 26 per cent in 2008.

However, JM Financial Services said in a report the charts indicated a positive short-term trend and recommended investors to build long positions at any decline.

Currency: Rupee hits week high

The Indian rupee rose to its highest in a week against the dollar on Tuesday helped by gains in the local share market and lower oil prices, which eased concerns over a widening trade deficit.

The partially convertible rupee ended at 42.23/24 per dollar, off an intraday high of 42.20, its strongest since July 28, and gaining 0.6 per cent from Monday's close of 42.49/50.

"Since oil is lower people are squaring long dollar positions. Offshore is also lower due to oil, so there was selling pressure, and even equities closed positive," said L. Subramanian, chief dealer at ICICI Bank.