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NEW DELHI (Reuters) - The BSE Sensex climbed 1 percent on Thursday, with export-focused software services exporters among the gainers on hopes for robust quarterly earnings after advance tax payments showed a sharp rise.
Gains in Europe also helped underpin the market after expectations for another rate increase by the Reserve Bank of India (RBI) had pushed shares down as much as 1 percent at one stage.
The RBI is set to announce its policy at noon (0630 GMT) on Friday, and most economists are betting it will increase rates by a quarter-point, which will be its 12th increase in 18 months.
Rising borrowing costs have hit economic growth and there is pressure on the RBI to pause its tightening cycle, especially with the global economy facing strong headwinds.
However, annual inflation climbed to its highest in more than a year, data showed on Wednesday, as prices of food and manufactured goods surged, reinforcing the case for a tighter policy.
The main 30-share BSE index closed up 166.94 points at 16,876.54, with one third of its components in the green.
K.K. Mital, head of portfolio management at Globe Capital, said a recovery in Europe helped the market to climb, but there were doubts whether the gains could be sustained.
"Investors are in a dilemma," he said. "The market is waiting for clarity: there needs to be a cautious view from the RBI on rate hike considering the global situation and the slowdown in India."
Tata Consultancy rose 2.6 percent to 1,041.75 rupees after provisional data showed it had paid 5.7 billion rupees as advance tax for July-September, up from 2.7 billion a year ago.
Infosys, the No.2 software services exporter, rose 2.5 percent, while third-ranked Wipro added 1.7 percent.
A sharp depreciation in the rupee, down 8 percent from a 2011 high in late July, is expected to boost the earnings of export-focused companies.
Energy major Reliance Industries, which has the biggest weighting on the BSE index, gained 1.3 percent to 836.30 rupees after its advance quarterly tax payment provisionally rose 67 percent.
The 50-share NSE index closed up 1.26 percent at 5,075.70 points. In the broader market, there were almost 1.4 gaining stocks for every loser. Volume was relatively lower at 568.6 million shares.
Banks rose on hopes the tightening policy will soon end.
Top lender State bank of India rose 3.9 percent, while HDFC Bank gained 1.2 percent.
Maruti Suzuki, which sells roughly half the cars sold in India, fell 1.1 percent after the company said it would close two factories on Friday due to a strike at its Suzuki-owned engine supplier.
European shares extended gains on Thursday as investor sentiment was given a boost after a conference call on Wednesday between France, Germany and Greek showed a commitment to keeping the debt stricken country in the euro zone.
At 1045 G MT, the MSCI world equity index was up 1.03 percent, while Japan's Nikkei closed 1.76 percent up.
* Suzlon, the world's No.5 wind turbine maker, rose 3.3 percent after its chairman said it could begin exporting Chinese-assembled turbines to third countries as early as next year.
* Marico fell 10.3 percent after the consumer products maker warned its post-tax profit in upcoming quarters may fall short of market expectations due to rising costs and continued uncertainty in the global markets.
* Kingfisher Airlines Ltd fell 4 percent after its auditor said needs to infuse required funds to continue as a "going concern", raising concerns about the future of the loss-making carrier.
* Unitech on 30.4 million shares
* Jaiprakash Associates on 21.1 million shares
* IFCI on 14 million shares
Editing by Ranjit Gangadharan