Indian rupee gains on drop in oil, share rise helps

* Rupee climbs as oil eases, seen trading in 42.8-43 band

* Stocks rally eases outflow worries (Updates to early trade)

MUMBAI, July 17 (Reuters) - The Indian rupee <INR=IN> rose on Thursday, boosted by a sharp drop in oil prices in the previous two sessions and a stock market rebound helped ease concerns of outflows.

At 10:10 a.m. (0440 GMT), the partially convertible rupee was at 42.90/91 per dollar, 0.4 stronger than 43.07/08 at Wednesday's close. It had hit a 15-month low of 43.50 earlier this month.

"Overnight factors like oil retracement, a Dow Jones rally and also gold retracement -- all put together have improved sentiment," said Ashit Parekh, head of foreign exchange trading at IndusInd Bank.

"Even local shares being higher is helping the rupee. It should trade in a 42.80 to 43 band through the day," he added.

Oil CLc1 held steady at a little below $135 a barrel, after a second consecutive session of steep losses the day before, as a surprise build in U.S. crude oil inventories amid flailing demand weighed on the market. See [O/R].

Gold steadied after falling more than 1 percent in New York on drop in oil prices. [GOL/].

India's main share index opened up 2.7 percent and soon extended gains to more than 4 percent, after having shed about a tenth in the last five sessions. [.BO].

Foreign funds have sold a net $7.1 billion of Indian shares so far this year, and have contributed to a more than 8 percent drop in the rupee's value against the dollar. They bought $17.4 billion in 2007 sending the rupee up by more than 12 percent. (Reporting by Swati Bhat; Editing by Ranjit Gangadharan)