BSE Sensex rises 1.4 pct; up for 3rd week in row

By Ami Shah

MUMBAI (Reuters) - The BSE Sensex climbed 1.4 percent on Friday and helped stretch weekly run of gains to three in a row, after higher European markets lifted investor confidence from an early slide.

Banks led the gainers with sentiment also boosted by an assurance the government was not planning to tax foreign capital inflows.

Montek Singh Ahluwalia, deputy chairman of the Planning Commission and a close confidant of the prime minister, told Reuters the government wants an increase in foreign investment and there was no proposal to tax overseas funds.

Curbs on foreign inflows imposed by Brazil and Indonesia have raised worries other countries may tighten rules to stem their strengthening currencies as investors move money into faster growing economies.

The 30-share BSE index closed up 1.41 percent, or 236.20 points, at 17,021.85, taking gains for the week to 1 percent. Twenty-six components closed in the green.

The benchmark is up more than 76 percent this year, supported by foreign portfolio investment of $15.4 billion. In 2008, the index had fallen more than a half as foreigners pulled out over $13 billion.

"If the rally gains momentum and crosses 18,000-18,500, we will move from a stretched valuation scene to a bubble zone," said A.V. Srikanth, executive director of private wealth management at Anand Rathi Financial Services.

State Bank of India and ICICI Bank, the country's top two lenders, gained 2.4 percent and 1.3 percent respectively.