* NSE rises as much as 0.51 pct to record high
* Rupee gains to strongest vs dollar since Oct 2015
* Bonds also up; 10-yr yield down as much as 14 bps
By Tanvi Mehta
April 3 (Reuters) - India's NSE index hit a record high on Monday, while the rupee strengthened to its highest in nearly 1-1/2 years and bonds rallied, with investor sentiment lifted by a surge in foreign investments last month.
Data out on Friday showed overseas investors bought a net $8.84 billion worth of Indian shares and bonds during March, the biggest monthly total since at least 2002, according to stocks depository services provider NSDL.
Foreign flows surged after Prime Minister Narendra Modi's ruling party won key state elections last month, bolstering hopes for additional economic reforms just as the government gears up to unveil a national goods and services tax later this year.
Investors have also been encouraged by signs the economy may not have been hit as hard by India's shock action to remove high-value bank notes from circulation last year.
Meanwhile, activity in India's manufacturing sector expanded at the fastest pace in five months in March as output and new orders accelerated, a private survey showed on Monday.
"It's a combination of FII (foreign institutional investor) liquidity, which is back, and the general atmosphere is as positive as can be for the market," said Jayant Manglik, president of retail distribution at Religare Securities.
India's broader NSE index rose as much as 0.51 percent to a record high of 9,220.65 points, surpassing its previous milestone of 9,218.40 points hit on March 17.
The NSE index was up 0.41 percent at 9,211.60 as of 0649 GMT.
The benchmark BSE index was 0.68 percent higher at 29,822.22.
The rupee strengthened to as much as 64.7650 per dollar, its strongest since October 2015, from its previous close of 64.8550, but gave up gains to trade at 64.8700/8750.
Bonds also rallied, sending the benchmark 10-year bond yield down as much as 14 basis points to 6.55 percent. It was last trading at 6.60 percent.
Reliance Industries jumped as much as 4.5 percent to its highest since May 2008 after its telecoms unit Reliance Jio signed up 72 million paying customers.
Rival Bharti Airtel fell as much as 3.3 percent, while Idea Cellular down as much as 1.6 percent.
Infosys Ltd fell as much as 1.5 percent after founder N.R. Narayana Murthy criticised a salary hike given to Chief Operating Officer Pravin Rao, raising concerns about disputes between founders and the board at the firm. (Reporting by Tanvi Mehta in Bengaluru; Editing by Biju Dwarakanath)