Indian shares rise 2.8 pct, Reliance Comm rebounds

(Updates to close)

By Narayanan Somasundaram

MUMBAI, July 4 (Reuters) - Indian shares climbed 2.8
percent on Friday as investors picked bargains in the battered
market, after political worries appeared to be easing but the
outlook was grim due to inflation and high oil prices.

For the week, the market dropped 2.5 percent, stretching
losses to seven weeks in a row, the longest run of declines in
seven years.

No. 2 mobile operator Reliance Communications Ltd (RLCM.BO: Quote, Profile, Research)
rebounded 12.5 percent to 438.20 rupees, its biggest one-day
gain in just over two years on expectations some clarity may
emerge on the status of its exclusive talks with MTN MTNJ.BO
that end next week. See [ID:nBOM178300]

The stock had earlier lost about a third of its value since
it announced the MTN talks on May 26.

The 30-share BSE index rose 2.75 percent, or
359.89 points, to 13,454, with 26 components gaining.

In the broader market, 1,688 gainers led 901 losers on
volumes of 334 million shares.

With global oil prices hovering near $144 a barrel and
annual inflation at more than 13-year high of 11.6 percent in
late June, investors are bracing for more monetary tightening
by the central bank, traders said.

"Except for valuations, all the other news flow is
negative. Markets are going to be very volatile next week,"
Jayesh Shroff, fund manager at SBI Mutual Fund, said.

The benchmark, which fell 18 percent in June, has lost 33.7
percent this year.

Larsen & Toubro (LART.BO: Quote, Profile, Research) firmed 6.5 percent to 2,379.85
rupees, its highest close in nearly two weeks, as the leading
engineering and construction firm recovered from a near 15
percent slide in the two weeks to Thursday.

No. 2 lender ICICI Bank (ICBK.BO: Quote, Profile, Research) rose 4.7 percent to
600.65 rupees after dropping nearly a fifth in the past two
weeks. Merrill Lynch maintained its buy rating and said a
downside was limited, but cut its price target to 1,010 from
1,250.

Traders said sentiment was helped by indications the
government would win over a regional party to enable keep its
parliamentary majority if the coalition's left allies withdrew
their support.

"Political factors negated the other threats to the market
today. Political developments point to the fact, the government
may survive," Shroff said.

Communist allies, who have threatened to withdraw their
support to the government if it pushed ahead with a U.S.
nuclear deal, said on Friday the coalition must tell them by
Monday what it had decided.

The government appeared closer to winning support from a
regional Samajwadi party, which hinted it would approve the
deal. [ID:nDEL328287].

Tata Steel (TISC.BO: Quote, Profile, Research), the world's sixth-largest steel
maker, was among the four losers in the index dropping 2.6
percent to 640.10 rupees after producers pledged to cut prices
of some products by up to 10 percent under pressure from the
government.

Annual inflation accelerated to 11.63 percent in late June,
above forecast and its highest since the series began in 1995.
See [ID:nBOM39838].

Oil CLc1, India's biggest import, was trading above $144
a barrel after smashing records five times in the past seven
sessions on tensions between Israel and Iran. See
[ID:nSIN37299]

The 50 share NSE index rose 2.3 percent to 4,016
points.

Elsewhere in the region, Karachi's 100 share index
fell 0.61 percent to 11,961.66 and Sri Lanka's Colombo All
share index .CSE eased 0.64 percent to 2,404.54.

STOCKS THAT MOVED

* Archidply Industries (ARCY.BO: Quote, Profile, Research) ended at 50.45 rupees on
its market debut, well off its issue price of 74 rupees.

* Construction and engineering firm Punj Lloyd (PUJL.BO: Quote, Profile, Research)
rose 14.1 percent to 228.40 rupees after it said on Thursday it
had won a 10.05-billion-rupee order from GVK Power.

* Low cost airline SpiceJet (SPJT.BO: Quote, Profile, Research) ended 7.8 percent up
at 25 rupees after the Business Standard daily reported that
Kingfisher Airlines was close to sealing a share-swap deal.

MAIN TOP 3 BY VOLUME

* Reliance Natural Resources (RENR.BO: Quote, Profile, Research) on 29.6 million
shares

* IFCI (IFCI.BO: Quote, Profile, Research) on 14.1 million shares

* Chambal Fertilisers & Chemicals (CHMB.BO: Quote, Profile, Research) at 12.3 million
shares

FACTORS TO WATCH
* For technical analysis double click on www.reutersindia.net
* Indian rupee rises as stock gain, oil key
[INR/]
* Indian bond yields ease ahead of auction results
[IN/]
* FOREX-Euro steadies nr 1-wk low, weighed down by
Trichet[FRX/]
* Oil pauses near record over $145, U.S. holiday ahead
[O/R]
* GLOBAL MARKETS-World stocks slip again, euro near 1-week low
[MKTS/GLOB]
* Wall St Week Ahead: For stocks, escaping bear hinges on oil,
GE [.N]
* For closing rates of Indian ADRs
INADR
(Editing by Ranjit Gangadharan)