India's markets greet government win with relief

By Saikat Chatterjee

MUMBAI (Reuters) - India's financial markets rallied on Wednesday in relief the government had won a confidence vote which could lead to it reviving stalled reforms, with the rupee surging against the dollar and shares jumping nearly 6 percent.

Stocks posted their biggest daily rise in four months and 10-year bond yields dropped to three-week lows as the immediate political uncertainty faded.

But traders said gains, particularly in the fixed income market, might be short-lived due to concerns about inflation near 12 percent and a possible monetary tightening next week.

"The markets never like uncertainty, so in that sense the end of the political uncertainty has brought in a feel-good factor," said Arun Kejriwal, strategist at research firm KRIS

"The government now has an opportunity to push through some reforms but whether they will actually be able to do it, I am not too sure," Kejriwal said.

The government won a vote of confidence in parliament late on Tuesday, ensuring the survival of the ruling coalition and of a civilian nuclear deal with the United States.

The vote came after market close and on Wednesday the partially convertible rupee ended up 1.5 percent at a two-month high of 42.09/10 per dollar, well above Tuesday's close of 42.73/74. It hit a 15-month low of 43.50 earlier in July.

The benchmark share index ended up 5.94 percent, its highest close since June 19. It gained 12 percent in the four sessions leading up to the vote, but is still down more than 26 percent this year.