Indian shares at 1-wk low on econ fears, firmer dlr

* Banks drop on concerns fin sector reforms may take time

* Markets expected to stay volatile in the short term

* Foreign fund inflows could slow as year winds down
(Updates to close)

By Narayanan Somasundaram

MUMBAI, Nov 19 (Reuters) - Indian shares fell 1.25 percent
to their lowest close in a week on Thursday, as doubts about
the pace of global recovery spooked world markets and a
stronger dollar pushed investors away from riskier equities.

ICICI Bank (ICBK.BO: Quote, Profile, Research), the country's No. 2 lender, and
energy major Reliance Industries (RELI.BO: Quote, Profile, Research), which together
account for more than a fifth of the main index, led the fall.

"Global economic doubts and the strengthening dollar are
not good news for stocks globally and India is no exception,"
Jayesh Shroff, a fund manager at SBI Mutual Fund, said.

He expected market to stay volatile in the short term but
remained bullish in the mid to long term as liquidity, which
has been driving markets, is still flush.

The 30-share BSE index .BSESN fell 213.13 points to
16,785.65, its lowest close since Nov. 12. All but three
components fell.

The benchmark has risen about three-quarters this year,
boosted by foreign portfolio inflows of $15.3 billion, but
fresh doubts about the global economic recovery and a reviving
dollar could push investors to other assets.

The dollar climbed further away from 15-month lows, forcing
gold prices lower while global equities slipped from the top of
their recent range. The dollar index, which tracks the currency
against major currencies, was up nearly half a percent .DXY.

A six-month low in U.S. housing construction in October and
news that Mitsubishi UFJ Financial Group (8306.T: Quote, Profile, Research), Japan's
largest bank, will have to raise $11 billion in new shares to
meet stricter capital requirements have underscored how the
climb back from the worst economic crisis in generations will
be slow.

Banks led losses as investors feared the government may
delay financial sector reforms, especially the much anticipated
rule changes for insurance and pension sector.

Bills take time to pass in India and progress in key
sectors could drag. Any substantial move on insurance or
pensions would send a signal of a renewed effort to modernise
the economy. Top lenders State Bank of India (SBI.BO: Quote, Profile, Research) was
down 2.2 percent at 2,280.45 rupees, to a two week low and
ICICI fell 2.2 percent to 885.55 rupees, its lowest close since
Nov. 9.

Reliance dropped 1 percent to 2,081.95 rupees on concerns a
weak global economy would hurt demand for oil and
petrochemicals.

Analysts said foreign fund inflows could slow down as the
year winds down.

Other emerging markets have also seen a surge in inflows,
prompting some, including Brazil and Taiwan, to impose
controls.

Finance Secretary Ashok Chawla said India was not planning
to cap overseas borrowing by corporates, and while flows were
being monitored they were not yet a concern. [ID:nDEL296681]

In the broader market, 1,698 losers led 1,095 gainers, on
relatively lower volume of 386.16 million shares.

The 50-share NSE index .NSEI shed 1.3 percent to 4,989.

STOCKS THAT MOVED

* JSW Steel (JSTL.BO: Quote, Profile, Research) hit its 2009 high of 1,039 rupees
after India's No. 3 steel maker and Japan's JFE Steel said they
had struck a deal for a production tie-up and may take stakes
in each other [ID:nT267373]. The share ended down 0.7 percent
at 959.35 rupees after having been up for most of the session.

* Suzlon Energy (SUZL.BO: Quote, Profile, Research) rose 2.5 percent to 75.20 rupees
after the wind turbine maker said it would cut its stake in
unit Hansen Transmissions (HSNT.L: Quote, Profile, Research). The company is placing 35
percent of Hansen's issued share capital through a secondary
placement of depositary interest.

* Sugar stocks fell sharply after farmers signalled their
discontent by protesting low state-controlled sugarcane prices.
Shree Renuka Sugar (SRES.BO: Quote, Profile, Research), Balrampur Chini (BACH.BO: Quote, Profile, Research), Bajaj
Hindusthan (BJHN.BO: Quote, Profile, Research) and Triveni Engineering & Industries
(TREI.BO: Quote, Profile, Research) fell between 3.5 percent to 6 percent.

MAIN TOP 3 BY VOLUME

* Suzlon on 39.93 million shares

* Ispat Industries (ISPT.BO: Quote, Profile, Research) on 8.85 million shares.

* Unitech (UNTE.BO: Quote, Profile, Research) on 8.52 million shares

FACTORS TO WATCH
* For technical analysis double click on www.reutersindia.net
* Indian rupee extends losses as shares fall; dlr gains
[INR/]
* Indian bond yields steady as supplies wane
[IN/]
* Yen gain as investors trim risk exposure
[FRX/]
* Crude drifts higher; watching dollar, US weather
[O/R]
* Strong dollar weakens gold, equities slip
[MKTS/GLOB]
* Wall St dips as tech outlook and housing take toll [.N]
* For closing rates of Indian ADRs INADR
(Editing by Ranjit Gangadharan)