MUMBAI (Reuters) - The BSE Sensex fell on Friday, posting its biggest weekly fall in four weeks, led by falls in State Bank of India, after the country's biggest lender posted its smallest profit increase this year as bad loans constrained earnings growth.
Falls also tracked lower global share markets which were on course for their worst weekly performance since June on Friday as concerns over the United States fiscal cliff and the outlook for Europe hit sentiment.
In a holiday-shortened week ahead, the markets would focus on release of September factory data on Monday and inflation on Wednesday.
India's industrial production likely grew at a steady but slow annual pace in September, lifted by infrastructure output, in what is likely to be further evidence of a sluggish economy, a Reuters poll showed.
"Market may remain volatile in near term as the U.S. ponders over tax increases and some key earnings disappoint," said Rahul Jain, senior vice president, institutional equity sales, at Prabhudas Lilladhar.
But as valuations don't look expensive, markets can go higher by the year end if capital flows sustain, he added.
The Sensex fell 0.86 percent or 162.58 points to end at 18,683.68 points, marking its second day of declines. For the week, the index closed down 0.4 percent, to post its biggest fall since the week ended October 14.
The 50-share Nifty fell 0.91 percent or 52.50 points to 5,686.25 points, falling 0.2 percent in the week, closing below the psychologically important level of 5,700.
Trading volumes are likely to remain low next week as the stock market will be closed on Tuesday and Wednesday for Diwali holidays, but a special trading session will be held on Tuesday.
State Bank of India (SBI.NS) fell 3.9 percent, marking its biggest single-day fall since October 30 as its September quarter asset quality disappointed investors.
The state-owned bank, which has exposure to debt-laden firms such as Kingfisher Airlines Ltd (KING.NS), Air India Ltd AIN.UL and Deccan Chronicle Holdings Ltd (DCHL.NS), said bad loans rose to 5.15 percent of its loan book as of the end of September from 4.19 percent a year earlier.
Among other key earnings, Tata Steel fell 3.32 percent after reporting a surprise quarterly loss of 3.64 billion rupees as weakening demand and prices in its main European market offset a solid performance at home.
Shares in state-run Oil & Natural Gas Corp ended 3.05 percent lower a day after posting a bigger-than-expected fall in July-September net profit due to higher subsidies.
Among gainers , United Spirits (UNSP.NS) rose 1.3 percent while United Breweries Holdings Ltd (UBHL.NS) rose 3.2 percent after Diageo Plc (DGE.L) agreed to buy a 53.4 percent stake in United Spirits for 111.67 billion rupees.
Diageo will buy a 27.4 percent stake in United Spirits and will launch a mandatory tender offer to buy 26 percent more from the public shareholders of United Spirits.
UB group's debt-laden Kingfisher Airlines (KING.NS) also ended 4.65 percent higher following the Diageo deal on hopes the money raised could be used to revive the carrier.
Ashok Leyland (ASOK.NS) rose 6.6 percent a day after posting July-Sept earnings that were above forecasts.
Additional reporting by Manoj Dharra; Editing by Sunil Nair