Indian rupee gains on stocks jump, dlr weakness

* Rupee rises, tracking 4.1 pct gain in shares

* Dollar's losses versus majors helps rupee sentiment

* Volatility to stay until clarity on political front-traders (Updates to close)

By Swati Bhat

MUMBAI, May 12 (Reuters) - The Indian rupee INR=IN rode a surging sharemarket and a weaker U.S. dollar to recover from early losses on Tuesday, but some poor data and caution ahead of election results at the weekend prevented a sharper rally.

The partially convertible rupee closed at 49.26/28 per dollar, 0.50 percent stronger than Monday's close of 49.52/53. In early trade, the rupee dropped to 49.70, its weakest since May 6.

"After the bad industrial output data and prevailing uncertainty about election results, there was no reason for the rupee to rally, except tracking major currencies gains versus the dollar, especially the sterling," said V. Kumar, chief dealer with State Bank of Travancore.

Industrial output INIP=ECI fell a steeper-than-expected 2.3 percent in March from a year earlier, its third fall in four months. [ID:nBMA002885]

The dollar slid to a four-month low on Tuesday as economic data strengthened a view the global recession is bottoming, boosting stocks and oil to the benefit of currencies like sterling and the Australian dollar. [USD/]