BSE Sensex gains on rate cut expectations

People walk pass the Bombay Stock Exchange (BSE) building displaying India's benchmark share index on its facade, in Mumbai July 31, 2009.

MUMBAI (Reuters) - The BSE Sensex rose on Thursday, after weaker-than-expected growth in industrial output data sparked expectations for an interest rate cut next week, boosting lenders such as ICICI.

India's industrial production grew at a slower-than-expected 4.1 percent pace in February from a year earlier, raising expectations the Reserve Bank of India will cut the repo rate at its policy meeting on Tuesday.

Though banks would benefit more directly from a cut in the cash reserve ratio, lowering India's main lending rate could improve growth prospects, helping a sector clamouring for relief either in liquidity or in bolstering the economy, analysts said.

"Market expects that RBI may cut interest rate on 17th April which will be boost the industry growth and investment," said Rikesh Parikh, vice president of equities at Motilal Oswal Securities.

The 30-share Sensex rose 0.77 percent to close at 17,332.62 points, while the broader Nifty closed 0.96 percent up at 5,276.85 points.

Lenders were among the leading gainers. ICICI Bank (ICBK.NS) rose 1.69 percent while State Bank of India (SBI.NS) gained 3.2 percent.

Bharat Heavy Electricals (BHEL) (BHEL.NS) rose 2.7 percent after the capital goods sub-index in the output data grew 10.6 percent in February from a year earlier, sharply recovering from an annualised fall of 1.7 percent in January.

Shares in India's largest car maker Maruti Suzuki (MRTI.NS) rose 3.14 percent on hopes for improved sales from its newly-launched vehicle Ertiga, which analysts said was priced low enough to make it competitive in the utility vehicle segment.

However, among decliners, India's second-largest software exporter Infosys (INFY.NS) fell 1.92 percent ahead of its quarterly earnings scheduled for Friday as investors fear weaker results for the sector.

Rivals Tata Consultancy Services (TCS.NS) lost 0.6 percent, while Wipro (WIPR.NS) declined 1.5 percent.

(Editing by Rafael Nam)