Indian shares hit; output data adds to fears

* Indian shares at 4-mth lows on weak output data
* Blue chips among the big decliners this week
* Inflation, global risk aversion key in near-term

By Abhishek Vishnoi
MUMBAI, May 11 (Reuters) - India's main stock index fell for
a fourth straight session to its lowest close since Jan. 16, led
by continued selling in blue chips after a contraction in
factory output weighed on a market already grappling with global
risk aversion.
India's industrial output unexpectedly contracted 3.5
percent in March from a year earlier. The data come on a day
marked by drops in Asian stock markets because of JPMorgan's
$2 billion loss from a failed hedging strategy and a set
of unexpectedly weak data from China.
However, some hopes for monetary easing at the central
bank's policy meeting next month did help support markets.
Goldman Sachs said India's weak output data, along with stable
core inflation, increased the probability of further rate cuts.

Comments from a deputy governor at the Reserve Bank of India
that the "tendency" for interest rates was "downward", despite
its concerns about inflation, also raised those hopes.

Inflation data due on Monday will be key for markets, with
traders saying the wholesale price index probably eased only
slightly in April from a year ago. Markets are also likely to be
impacted by the global risk environment.
"Risk aversion levels are similar to that of December," said
Paras Adenwala, principal portfolio manager of Capital Portfolio
Advisors, talking about a month that saw India's BSE index drop
nearly 6 percent and the rupee hit a record low against the
dollar.
"Positive policy moves should match with current negative
global environment for India to emerge as a winner amid this
risk off," he added.
The 30-share BSE index fell 0.77 percent to
16,292.98 points.
India's main index fell 3.2 percent for the week, marking
its biggest weekly fall since mid-December and its third
consecutive weekly loss.
The 50-share NSE index lost 0.74 percent.
Blue chips extended a rout, with shares in software services
exporter Infosys falling 1.4 percent, having shed 5.4
percent for the week.
Cigarette maker ITC lost 2.1 percent on Friday.
Larsen & Toubro declined 1.5 percent after a
sub-index of the industrial output data on Friday showed capital
goods output dropped 21.3 percent in March.
Shares in JSW Steel fell 5.1 percent after the
company said India's top court had ordered the federal police
agency to probe its alleged involvement with two other companies
in illegal iron ore mining in the southern state of Karnataka.

Among gainers, shares in Jubilant Foodworks added
7.6 percent after CLSA upgrades the stock to "buy" from
"outperform," citing optimism about its growth for Domino's and
Dunkin' Donuts stores.
Shares of SKS Microfinance ended 10.4 percent
higher after the cabinet approved a bill to bring microlenders
under the central bank's oversight and away from more stringent
state government rules.

FACTORS TO WATCH

* Euro near 3-1/2 month low vs dlr as Greece wrangles
* Oil dips below $112, Chinese data weighs

* Shares, commodities slide on Greek impasse

* Foreign institutional investor flows

* For closing rates of Indian ADRs

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(Additional reporting by Manoj Dharra; Editing by Rafael Nam)