Banks lead Sensex to near 32-month high

The illuminated Bombay Stock Exchange (BSE) building is seen in Mumbai in this October 2008 file photo.

MUMBAI (Reuters) - The BSE Sensex had its best week in six months, rising 0.7 percent to its highest close in almost 32 months on Thursday as rapid growth expected in Asia's third-largest economy drew investors.

The market is closed on Friday for a local holiday.

Financials such as SBI, ICICI Bank and HDFC Bank led the gains as fund managers bet the sector would benefit from a booming domestic economy, which is expected to expand 8.5 percent in the 2011 fiscal year.

The 30-share BSE index closed up 0.71 percent, or 132.95 points, at 18,799.66, with 18 components rising. It had hit 18,823.17 points intra-day, its highest since February 2008.

The benchmark ended the week up 3.2 percent, its best weekly performance since early March.

"I will not be advising clients to exit in a hurry. There is still enough liquidity in the system to support the market, and the macroeconomic situation still looks pretty good," said Sonam Udasi, head of research at IDBI Capital.

The BSE index has risen more than 7.6 percent so far in 2010, helped by foreign portfolio investments of about $13.5 billion. It had soared 81 percent in 2009, its biggest yearly rise since 1991.

Some analysts warned that the market was becoming expensive, and may be due for a correction.

"There will be profit-taking at these levels," said Neeraj Dewan, director at Quantum Securities. "This is the last leg of a short-term rally. The dips should be used to buy."

The BSE index trades at close to 18 times forward earnings, and is costlier than most benchmarks in other major emerging economies.

"Even if there is a correction in one or two weeks, it will be at the most about 5 percent. Buying will be back then," IDBI's Udasi said.

On Thursday, State Bank of India, the country's top lender rose 3.1 percent to 2,982.50 rupees, while private-sector rival ICICI Bank gained 2.5 percent to 1,050.75 rupees. HDFC Bank ended up 2.7 percent at 2,240.45 rupees.

Automakers were in demand after an industry body said car sales rose by a third to a record high in August.

Mahindra & Mahindra rose 3.2 percent to 655.40 rupees, while Maruti Suzuki climbed 0.5 percent to 1,314.80 rupees. Hero Honda firmed 1.5 percent to 1,732.55 rupees.

In the broader market, gainers outnumbered losers 1,583 to 1,386 on volume of 536.6 million shares.

The 50-share NSE index rose 0.6 percent to 5,640.05 points.

The market was getting overvalued and the NSE index could face resistance 5,650 points, said Ambareesh Baliga, vice president of Karvy Stock Broking.

MSCI's measure of Asian markets other than Japan gained 0.8 percent, while Japan's Nikkei rose 0.82 percent.

At 1033 GMT, the FTSEurofirst 300 index of top European shares was up 0.4 percent.

STOCKS THAT MOVED

* Hindustan Unilever (HLL.BO) rose 1.3 percent following a report in the DNA newspaper that the company had hiked prices of detergents.

* Port operator and developer Gujarat Pipavav Port Ltd, which listed at a premium of 22 percent to its issue price of 46 rupees, ended the day at 54.05 rupees.

* Vindhya Telelink jumped 10 percent to 437.65 rupees after The Economic Times reported the company, in collaboration with Ericsson Cables, was set to receive an optic fibre network contract worth 75.82 billion rupees from state-run BSNL.

MAIN TOP 3 BY VOLUME

* Gujarat Pipavav on 57.9 million shares

* Karuturi Global on 31.4 million shares

* Ispat Industries on 15.7 million shares

(Additional reporting by Bharghavi Nagaraju; editing by Malini Menon)

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