Indian shares log first weekly gain in 3 weeks

* Rise 0.6 pct on day; up 1.6 pct on week

* Banks climb as investors pick bargains

* Tata Steel rallies 3.1 pct as India sales up in Oct

* State firms gain on government divestment plan
(Updates to close)

By Ami Shah

MUMBAI, Nov 6 (Reuters) - Indian shares climbed 0.6 percent
on Friday and helped post their first weekly rise in three,
with banks leading the rebound as investors picked bargains
after last month's fall.

Gains in global stocks after the U.S. Labor Department said
initial claims for state unemployment benefit had dropped to
its lowest level since early January also underpinned the
market.

Tata Steel (TISC.BO: Quote, Profile, Research), the world's No. 8 steelmaker, firmed
3.1 percent to 499.70 rupees, after steel sales at its Indian
operations rose an annual 38 percent in October.
[ID:nDEL276973]

Banks were bolstered after Standard & Poor's said on
Thursday they would gain more than they would lose from tighter
loan provisioning requirements.

Top lender State Bank of India (SBI.BO: Quote, Profile, Research) rose 3.1 percent,
its biggest rise in three weeks, to 2,204.20 rupees and while
rival ICICI Bank (ICBK.BO: Quote, Profile, Research) added 0.5 percent to 848.75 rupees.

India's central bank had said on Oct. 27 banks must
increase the minimum provision ratio for bad debts to 70
percent by September 2010.

State Bank and ICICI are still down 4.4 percent and 4.7
percent since Oct. 26.

S&P said the changes would boost banks' provisioning
cushions and bring coverage ratios in line with their major
Asian peers.

"I think they (banks) are just catching up after lagging
behind for a while. The pattern these days is when people find
a laggard, people want to enter it at attractive levels," said
Rakesh Rawal, head of private wealth management at Anand Rathi.

"We have a positive long-term outlook for broader markets,
and banks are likely to be amongst the major gainers," he said.

The 30-share BSE index .BSESN closed up 0.59 percent, or
94.38 points, at 16,158.28, taking gains in the week to 1.6
percent. Nineteen of its components gained.

The benchmark has risen 4.9 percent in the past three days,
after sliding 8.4 percent over six sessions.

"Volatility will continue in the near term. Global cues are
also not very clear," Rawal said.

The index is up around 67 percent from the end of 2008,
with foreign funds moving more than $14 billion into Indian
equities this year.

Energy giant Reliance Industries (RELI.BO: Quote, Profile, Research) closed 0.9
percent higher at 1,956.75 rupees, continuing its recovery. The
stock fell abut 20 percent in 10 sessions from Oct. 20, hitting
a 3-½ month low on Tuesday, but has since risen more than 7
percent.

"Although the next two months are likely to be volatile,
for investors with a 12 month or longer-term view, the stock is
attractively priced," Neil Beveridge and Angus Chan, analysts
with Sanford C. Bernstein, which has an 'outperform' rating on
the stock, said in a note.

The sector index for public sector companies rose
3.9 percent, after the government on Thursday mandated more
sales of shares by state firms and changed the rules on how it
can use the proceeds, as it seeks to boost revenues and rein in
a widening budget deficit. [ID:nBOM397389]

State-run NMDC (NMDC.BO: Quote, Profile, Research) hit its upper limit of 10 percent
while Steel Authority of India (SAIL.BO: Quote, Profile, Research) and Shipping Corp of
India (SCI.BO: Quote, Profile, Research) rose 1.3 percent and 2.5 percent respectively.

Engineering and construction firm Larsen & Toubro (LART.BO: Quote, Profile, Research)
rose 2.2 percent to 1,575.70 rupees, after 4.2 million shares
changed hands in a block deal at 1,566.30 rupees.

In the broader market, gainers outpaced losers in the ratio
of 1.5:1 on relatively better volume of 421 million shares.

The 50-share NSE index .NSEI closed 0.6 percent higher at
4,796.15.

STOCKS THAT MOVED

* Tata Chemicals (TTCH.BO: Quote, Profile, Research) rose 5.3 percent to 278.15
rupees, after a senior company official said the chemical maker
expects its fertiliser plant in the northern state of Uttar
Pradesh to start commercial production by mid 2010.
[ID:nBOM269495]

* Trucks and bus maker Ashok Leyland (ASOK.BO: Quote, Profile, Research) extended
gains and rose 3.9 percent to 51.20 rupees after it said
earlier this week its October sales rose 57 percent.

MAIN TOP 3 BY VOLUME

* Suzlon Energy (SUZL.BO: Quote, Profile, Research) on 23.7 million shares

* IFCI (IFCI.BO: Quote, Profile, Research) on 17.9 million shares

* Indiabulls Power (INDP.BO: Quote, Profile, Research) on 15.5 million shares

FACTORS TO WATCH
* For technical analysis double click on www.reutersindia.net
* India rupee report
[INR/]
* India bond report
[IN/]
* Dollar eases a bit ahead of U.S. jobs data
[FRX/]
* Oil rises above $80, awaits US October jobs data
[O/R]
* Stocks, commods gain ground, payrolls eyed
[MKTS/GLOB]
* Wall St rallies on economic data, Cisco
[.N]
* For closing rates of Indian ADRs
INADR
(Editing by Ranjit Gangadharan)