Sensex drops to 2-week low, Infosys hit by outlook

MUMBAI (Reuters) - The BSE Sensex fell more than 1 percent to a two-week low on Friday, as technology stocks dropped after bellwether Infosys kick started the domestic corporate earnings season with a disappointing revenue outlook.

The forecast from India's No.2 software services exporter sparked worries about the country's $100 billion outsourcing sector, as well as about the broader outlook for corporate profits.

A fall in European shares on renewed concerns about rising borrowing costs in Spain accelerated the domestic share falls during afternoon trade, making for a volatile session.

Caution is likely to prevail early next week, given inflation data is due out on Monday, while the Reserve Bank of India meets for what's seen as a critical policy meeting on Tuesday.

"Today's selling was a mix of Infosys results and fresh worries in Europe," said Sandeep J. Shah, CEO of investment advisory firm Sampriti Capital, adding that markets would now focus on the RBI meeting.

The 30-share Sensex fell 1.37 percent to close at 17,094.51 points, its lowest close since March 29.

The broader Nifty closed 1.32 percent lower at 5,207.45 points.

Shares in Infosys (INFY.NS) dropped 12.7 percent, after earlier falling as much as 13.1 percent to its lowest since late September.

The decline came after Infosys forecast full-year dollar revenue at 8-10 percent, compared with market expectations for a rise of 10-15 percent.

The weak outlook dragged down domestic rivals, sending sector leader Tata Consultancy Services (TCS.NS) down 5.6 percent and Wipro (WIPR.NS) down 4.5 percent.

The steep falls in the IT sector soured overall sentiment, leading to profit-taking among recently outperforming sectors.

Banks reversed earlier gains, with a sub-index losing 0.9 percent to post its first fall in four sessions.

The RBI is widely expected to cut on Tuesday the repo rate by 25 basis points for the first time since April 2009, but could keep the cash reserve ratio steady after slashing it by 125 bps this year.

"It will be just a 25 bps repo cut .... CRR cut would not make sense as liquidity is fine," said Sampriti's Shah.

Among banks, State Bank of India (SBI.NS) lost 0.7 percent, while ICICI Bank (ICBK.NS) fell 1.6 percent.

However, among gainers, Indian cement producers rose after Citigroup upgraded Ambuja Cements (ABUJ.NS), ACC (ACC.NS) and UltraTech Cement (ULTC.NS) to "buy" from "sell," citing rising demand, among other factors.

Shares of Indian airline companies extended a recent rally on mounting expectations their foreign peers will soon be allowed to buy stakes in them.

SpiceJet (SPJT.BO) surged 10.2 percent, while Jet Airways (JET.NS) gained 1.4 percent.

(Editing by Rafael Nam)