Indian shares rally 3.7% as rupee gains

Mumbai: Indian shares rose 3.7 per cent yesterday to their highest close in five weeks, after inflation dropped to a nine-month low and the government unveiled a bigger spending plan to stimulate the economy.

Financial stocks such as State Bank of India and ICICI Bank led the surge as inflation, which fell to below 7 per cent, boosted prospects for deeper interest rate cuts in coming weeks, analysts said.

"I think the RBI will go for aggressive moves. I expect a rate cut either this month or early January," said D.K. Joshi, principal economist at rating agency Crisil, referring to the Reserve Bank of India.

The 30-share BSE index rose 361.14 points to 10,076.43, its best close since November 10. It had seesawed in the morning falling nearly 1 per cent as energy firms fell with oil treading water at near four-year lows.

The Indian rupee ended at its highest in nearly 1-1/2 months yesterday, as a rally in local shares raised expectations of more capital inflows and dollar weakness supported sentiment.

The partially convertible rupee ended at 46.95/96 per dollar.