Indian shares rally 3 pct, Reliance Comm up

(Updates to late morning)

NEW DELHI, July 9 (Reuters) - Indian shares rose more than
3 percent on Wednesday after global oil prices fell sharply
and on hopes the government would be able to revive stalled
economic reforms after left allies pulled out of the ruling
coalition.

Reliance Communications (RLCM.BO: Quote, Profile, Research) trimmed gains after South
Africa's MTN (MTNJ.J: Quote, Profile, Research) and the Indian No. 2 mobile firm said
they had agreed to extend their exclusive talks to combine
their business. See: [ID:nL09143140]

The stock, which had fallen 27 percent since the talks
began in late May, rose as much as 7 percent in early trade
before the announcement on speculation the deal had fallen
through.

By 11:28 a.m. (0558 GMT), the 30-share index was
up 3.1 percent, or 414.31 points, at 13,763.86 with all but one
component rising.

The benchmark, which is down 32.1 percent so far this year,
had risen more than 4 percent early on the back of a stocks
bounce across markets after oil dropped.

Oil CLc1 was trading above $137 a barrel after falling
more than $5 on Tuesday. See: [ID:nSIN21588]

"Oil prices are down and also at home front the political
uncertainty which was there is now over with the left pulling
out support," said K.K. Mital, head of portfolio management
services at Globe Capital.

A regional party, whose support appears crucial for the
survival of the government, said on Tuesday it would not be
"rigid" on economic issues but wants a mechanism through which
it can influence policy making. See: [ID:nDEL35324]

The Samajwadi Party also said it wanted the ruling
coalition to use the country's foreign exchange reserves to
check the depreciation of the rupee and inflation.
[ID:nBOM27907]

The communist parties that have provided India's government
with a parliamentary majority for four years said on Tuesday
they were withdrawing their support to protest a civilian
nuclear energy deal with the United States. [ID:nISL289893]

The government is expected to face a vote of confidence in
parliament in the coming weeks.

Top private firm Reliance Industries (RELI.BO: Quote, Profile, Research) gained 2.4
percent to 2,025 rupees, after falling 3.5 percent in the last
two sessions.

Second-largest lender ICICI Bank ICBK rose 5.1 percent to
624.35 rupees as investors bought into beaten-down bank stocks
that have lost more than half their value in 2008. The BSE Bank
index was up 4 percent.

Reliance and ICICI constitute nearly 23 percent of the
weightage in the main index.

In the broader market 1,781 gainers were ahead of 450
losers on volume of 120 million shares.

Reliance Communications, controlled by billionaire Anil
Ambani, came off an early high of 444.45 rupees and was trading
up 4.4 percent at 433.50 after the exclusive talks with MTN
were extended till July 21.

Analysts had said a possibility of legal action by Mukesh
Ambani, the elder brother of Anil and chairman of Reliance
Industries, over the deal and sharp fall in the mobile firm's
shares were obstacles to a tie-up.

The 50-share NSE index rose 2.9 percent to 4,103.85
points.

Elsewhere in the region, Karachi's 100-share index
eased 0.19 percent gained to 11,791.19 percent , while
Colombo's All-share index .CSE firmed 0.37 percent to
2,381.44.

STOCKS ON THE MOVE

* Godrej Industries (GODI.BO: Quote, Profile, Research) rose 10.9 percent to 174.05
rupees after it said its board would meet on July 29 to
consider a share buyback.

* Oil marketing firms Hindustan Petroleum (HPCL.BO: Quote, Profile, Research), Bharat
Petroleum (BPCL.BO: Quote, Profile, Research) and Indian Oil Corp (IOC.BO: Quote, Profile, Research) were up
between 1.5 percent and 5 percent after oil prices eased.

* Drugmaker Dr. Reddy's Laboratories Ltd (REDY.BO: Quote, Profile, Research) was up
3.1 percent at 664 rupees after it agreed to globally
distribute U.S.-based Albemarle Corp's (ALB.N: Quote, Profile, Research) painkiller
Ibuprofen.

MAIN TOP 3 BY VOLUME

* IndusInd Bank (INBK.BO: Quote, Profile, Research) on 10.1 million shares

* Reliance Natural Resources (RENR.BO: Quote, Profile, Research) on 8.6 million
shares

* IFCI (IFCI.BO: Quote, Profile, Research) on 6.4 million shares

FACTORS TO WATCH
* For technical analysis double click on www.reutersindia.net
* Indian rupee climbs as oil falls, stocks rally
[INR/]
* Indian bond yields ease but traders watchful
[IN/]
* FOREX-Dollar dips, bonds trim losses on Iran missile test
[FRX/]
* London Brent Crude up $1/bbl on IRan missile test
[O/R]
* GLOBAL MARKETS-Asia stocks rebound as oil falls below $136
[MKTS/GLOB]
* US STOCKS-Wall St jumps on oil drop, surging financials
[.N]
* For closing rates of Indian ADRs
INADR
(Reporting by Devidutta Triparthy and Narayanan Somasundaram;
Editing by Ranjit Gangadharan)