UPDATE 2-India to mull ending fuel subsidies, approval likely

* Cabinet may free fuel price to ease subsidy burden in July

* Analysts expect approval, kerosene prices still kept cheap

* Petrol prices would rise by 5 pct if controls removed today

* Refiner IOC (IOC.BO: Quote, Profile, Research) +7 pct, upstream ONGC (ONGC.BO: Quote, Profile, Research) +4 pct (Adds price, quotes and details)

By Nidhi Verma

NEW DELHI, May 29 (Reuters) - India's government said it may eliminate diesel and gasoline subsidies as soon as July, quicker than expected, ending a policy that had crushed state refiners' profits, strained government finances and inflated oil demand.

Emboldened by an unexpectedly strong election victory this month, the Congress-led cabinet will consider a proposal to free state controls on transport fuel prices in July, Oil Minister Murli Deora told reporters, news that sent shares of oil companies surging as investors bet on more stable earnings.

"It will go to the cabinet. It will be discussed soon, within six weeks," said Deora, who on Thursday was reconfirmed in the role he has held since early 2006, when world crude oil prices CLc1 were first pushing beyond $70 a barrel.

India's move, which one state oil executive said would trigger a 5 percent rise in prices if made today to match $65 crude oil, is one of many important reforms expected from the government, and suggests it is ready to take difficult but important steps in order to balance growth with fiscal prudence.