Indian shares drop 3 pct on politics, credit woes

By Devidutta Tripathy

MUMBAI (Reuters) - India's main index slid 3.04 percent to a three-month closing low on Tuesday as investors were rattled by global fears of a credit squeeze and local political troubles over a nuclear energy deal with the United States.

Banks led losses as investors dumped financial stocks, and software service exporters suffered on concerns the spreading problems of the U.S. subprime mortgage sector could see customers firms cut back on spending.

ICICI Bank led the index down with a 4.8 percent fall, unwinding most of Monday's 5.6 percent rise when Indian stocks had ridden a global surge in equity markets.

"The market is likely to go down further till some clarity emerges on the political front. At the same time, global worries are surely affecting sentiments here," said Vinod Bansal, director at Ficuswealth.

The 30-share BSE index fell by 438.44 points to 13,989.11 -- right on its 200-day moving average and its lowest close since May 15 -- with all 30 components falling. It had fallen as much as 3.4 percent in late trade as losses in European markets weighed.

The index has dropped more than 1,000 points, or 6.7 percent, in the past week, and is 11.8 percent below a record high of 15,868.85 hit on July 24.

Indian communists, who are not part of the government but shore it up, have virtually threatened to withdraw their support over a civil nuclear cooperation deal with the United States, which could bring the ruling coalition down.

"Yesterday we closed more than 250 points below the day's high. Today some Asian markets have also gone down from their peaks. So there is surely some amount of caution plus the overhang of politics," said Gajendra Nagpal of Unicon Financial.