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* NSE index up 0.16 pct, BSE 0.19 pct higher
* State election exit polls show Modi's party in lead, results Sat
* Sell off in bonds tracking US Treasuries; rupee holds vs dlr
By Darshana Sankararaman
BENGALURU, March 10 (Reuters) - Indian shares rose on Friday and were set to post small weekly gains after exit polls showed Indian Prime Minister Narendra Modi's ruling party ahead of rivals in an election in the country's most populous state.
Victory for Modi's Bharatiya Janata Party (BJP) in the northern Indian state of Uttar Pradesh, which is home to 220 million people, would boost his chances of winning the 2019 general election and underscore his popularity after he made himself the face of the party's campaign.
The likely victory means more number of legislators in the upper house for Modi where the ruling party doesn't have a majority, improving the government's chances of passing key reform bills.
The poll results, including in four other states, will be announced on Saturday. Exit polls, which at times have been proven wrong, showed Modi's BJP winning but falling short of a majority to form a government in Uttar Pradesh, the most crucial among the states that went to the polls.
"Market is largely expecting BJP to come to power in four states out of five," said Deven Choksey, managing director at KR Choksey Shares and Securities.
"Because of that, the government in the centre would have much better freedom to take decisions in the Rajya Sabha (upper house) where they can really push for reforms very systematically."
The broader NSE index was up 0.16 percent at 8,941.35 by 0530 GMT, while the benchmark BSE index was 0.19 percent higher at 28,982.33.
"The polls do give an edge to BJP but given the variation across polls, markets may still wait for final results for a clear direction," Citi analysts wrote in a note.
IT stocks rose after losing for two sessions, with Infosys Ltd and Tata Consultancy Services Ltd climbing 1 percent each.
Financial stocks gained, led by Kotak Mahindra Bank Ltd and Axis Bank Ltd, which rose as much as 1.63 percent and 0.7 percent, respectively.
Bonds and foreign exchange markets were however muted and were tracking more closely movements in global markets.
The 10-year benchmark bond yield rose to 6.88 percent from its previous close of 6.85 percent, mirroring a sell-off in U.S Treasuries overnight.
The rupee was holding up against the dollar at 66.68 versus 66.71 on Thursday, and could remain supported on capital inflows, traders said. (Reporting By Darshana Sankararaman in Bengaluru, additional reporting by Suvashree Dey Choudhury in Mumbai; Editing by Biju Dwarakanath)