* Draft bill calling for mining profit share drags miners
* Reliance Industries falls on Morgan Stanley downgrade
* ICICI Bank drops 2.72 pct, State Bank of India dips 0.2 pct (Updates to close)
By Manasi Phadke
MUMBAI, July 8 (Reuters) - Indian shares ended higher for the third week in a row, but slipped more than 1 percent in choppy trade on Friday, dragged by losses in miners, Reliance Industries and financials and some profit booking.
Coal India , the world's largest coal miner, plunged 8 percent , after a government source said a panel of ministers had approved a new bill calling for coal miners to share up to 26 percent of their profits with local communities.
Shares in steelmakers Jindal Steel & Power and Tata Steel fell 1.91 percent and 1.94 percent respectively on the draft bill, while metal makers Sterlite Industries and Hindalco shed more than 3 percent each. These firms operate captive coal mines.
Iron ore exporter Sesa Goa tumbled 4.4 percent.
The proposed profit-sharing formula is a bid to smooth land acquisition. While industry bodies are reconciled to sharing some profits, they have baulked at 26 percent, saying that will sharply raise business costs and deter investors.
"Prima facie, the costs may go up and the profits may come down, but it's a very prima facie opinion," said Jayesh Shroff, fund manager at SBI Mutual Fund.
"We need to see the fine print of the bill," Shroff said, adding, he expects the market to remain volatile in the near term.
The 30-share BSE Sensex shed 1.15 percent at 18,858.04 points, with 22 of its components declining.
The index has lost 8 percent of its value year-to-date, but has gained 0.6 percent over the past one week.
"The market has risen so much..., obviously it will look for some kind of a corrective phase," said Nilesh Doshi, president of equity research at Techno Shares & Stocks Ltd.
"Some profit-booking is taking place," Doshi said.
Foreign funds bought Indian shares worth $2.26 billion over 10 sessions to Wednesday, data from the market regulator showed.
Reliance Industries fell 1.8 percent after Morgan Stanley downgraded the energy giant's stock to "equal weight" from "overweight" and slashed its price target to 956 rupees from 1,206 rupees.
The stock is cheap, but there are no short-term positive triggers, the brokerage said in a research report. It also cited lack of clarity on cash flow deployment in the short term and concerns surrounding the production ramp-up as reasons for the downgrade.
ICICI Bank fell 2.7 percent, while top lender State Bank of India regained some lost ground to close 0.2 percent lower , after falling as much as 1 percent earlier.
State Bank of India raised its benchmark prime lending rate by 25 basis points on Thursday, joining rival ICICI Bank, which had raised its base rate last week.
India's central bank raised interest rates by 25 basis points in June, the 10th increase since March 2010, to combat stubbornly high inflation and putting pressure on banks to hike their lending rates.
The 50-share NSE index was down 1.19 percent at 5,660.65 points.
A total of 983 losers outpaced 437 gainers in a total volume of 649.8 million on the NSE.
The MSCI's measure of Asian markets other than Japan was up 0.61 percent, while Japan's Nikkei was up 0.66 percent.
STOCKS THAT MOVED
* Dhanalaxmi Bank fell 5 percent, after its chief financial officer said the lender called off a plan to raise 2.9 billion rupees by selling a 19.6 percent stake at a premium to a group of investors after one of them backed out.
* Man Infraconstruction Ltd rose 5.3 percent, after the company said it has bagged orders worth 950 million rupees.
TOP 3 MAIN STOCKS BY VOLUME ON NSE * Unitech on 50.5 million shares * Rushil Decor on 26.6 million shares * Coal India on 19.4 million shares
FACTORS TO WATCH * For technical analysis double click on www.reutersindia.net * Rupee at 2-mth high on strong dlr inflows, Asians peers * Indian bond yields steady; auction results awaited * Dollar rallies on strong U.S. jobs data bets * Brent slips $1 ahead of payrolls * Euro zone banking worries dent jobs cheer * Futures little changed before payrolls report * For closing rates of Indian ADRs
(Editing by Malini Menon) (firstname.lastname@example.org; +91-22-6636 9059; Reuters Messaging: email@example.com)
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