Indian shares rally 4 pct as banks rebound

* Banks lead shares higher after inflation below f'cast

* Technology stocks fall on cautious outlook

* Investors await next week's confidence vote in
parliament
(Updates to close)

By Devidutta Tripathy & Sumeet Chatterjee

NEW DELHI, July 18 (Reuters) - Indian shares rose 4 percent
on Friday to their highest close in more than a week, led by
banks as slower-than-expected inflation eased concerns of
further monetary tightening, but software firms fell on
cautious outlook.

Financial stocks, which had been knocked down sharply this
month due to weak global sentiment towards the sector,
rebounded as the outlook seemed not as bad as feared.

No. 2 lender ICICI bank (ICBK.BO: Quote, Profile, Research) jumped 12.1 percent to
617.60 rupees and larger rival State Bank of India (SBI.BO: Quote, Profile, Research)
gained 5.9 percent to 1,299.70 rupees. The sector index
closed 8.1 percent higher.

"Banking shares had been beaten down more than they
deserve," said Gajendra Nagpal, chief executive of Unicon
Financial.

The rally took gains for the main index to 8.4 percent in
two days, after tumbling by a tenth in the previous five days.

Shares in Reliance Communications (RLCM.BO: Quote, Profile, Research) rose 4.1
percent to 435.20 rupees, as investors shrugged off the latest
twist in a family squabble and kept alive hopes for a deal with
South Africa's MTN Group (MTNJ.J: Quote, Profile, Research) to create a top-10 global
telecom firm. See: [ID:nBOM341527]

The main 30-share BSE index ended up 3.99 percent,
or 523.55 points, at 13,635.40, after having risen as much as
4.4 percent during trade. Twenty-three of its components
gained.

The benchmark, which had hit its lowest in 15 months on
Wednesday, was up 1.2 percent on the week, posting its second
weekly gain after falling for seven consecutive weeks.

The index is down about 33 percent in 2008.

In the broader market, 1,612 gainers were ahead of 976
losers on volume of 280 million shares.

Investors will be watching a vote of confidence in the
government early next week, after left allies of the coalition
withdrew support last week to protest a nuclear deal with the
United States.

"The market movement will be decided by the outcome on July
22," Nagpal said, referring to the confidence vote. "It's such
a big political event and the news we are getting is it's going
to be a tough fight."

Annual inflation rate rose to 11.91 percent in early July,
below forecasts and only slightly higher than a week earlier,
reducing risk of monetary tightening when the central bank
reviews policy on July 29. [ID:nnBOM65219]

"If the oil prices remain soft, then we will see moderation
in inflation and that will be a positive for the market,"
Nagpal said.

Wipro Ltd (WIPR.BO: Quote, Profile, Research) fell 3.8 percent to 365.55 rupees,
after the No. 3 software services exporter missed forecasts
with a 15 percent rise in quarterly profit and sounded cautious
in the near term. [ID:nBOM160955]

Smaller rival Satyam Computer Services (SATY.BO: Quote, Profile, Research) ended down
7.5 percent at 382.95 rupees, despite beating forecasts with a
45 percent rise in quarterly profit.

Analysts say Satyam, being the smaller of the top services
exporters, it may be more vulnerable to an U.S. economic
slowdown than its larger rivals.

The broader 50-share NSE index rose 3.67 percent to
4,092.25.

Elsewhere in the region, Karachi's 100-Share index
edged up 0.21 percent to 10,234.78, while Colombo's All-Share
index .CSE dropped 0.11 percent to 2,412.38.

STOCKS THAT MOVED

* Bharti Airtel (BRTI.BO: Quote, Profile, Research), India's top mobile operator,
rose 7.1 percent to 802 rupees on hopes for strong quarterly
results, traders said. It reports results next week.

* Top listed real estate firm DLF Ltd (DLF.BO: Quote, Profile, Research) rose 7
percent to 457.05 rupees and Unitech (UNTE.BO: Quote, Profile, Research) added 4.6
percent to 149.20 rupees as monetary tightening fears eased.

* Sasken Communication (SKCT.BO: Quote, Profile, Research) reversed early losses and
closed 3.7 percent higher after the telecoms software firm's
June quarter profit more than doubled.

MAIN TOP THREE BY VOLUME

* Reliance Natural Resources (RENR.BO: Quote, Profile, Research) on 16.7 million
shares * IFCI Ltd (IFCI.BO: Quote, Profile, Research) on 14.5 million shares

* Reliance Petroleum (RPET.BO: Quote, Profile, Research) on 12.8 million shares

FACTORS TO WATCH
* For technical analysis double click on www.reutersindia.net
* Indian rupee eases on arbitrage-dealers
[INR/]
* Indian bond yields at 2-week low as oil drops
[IN/]
* FOREX-Dollar edges up as stocks eyed, sterling falls
[FRX/]
* Oil bounces, still tentative after steep 3-day slump
[O/R]
* GLOBAL MARKETS-Bank losses hit stocks, oil bounces back
[MKTS/GLOB]
* US STOCKS-Futures cut losses after Citigroup results
[.N]
* For closing rates of Indian ADRs
INADR
(Editing by Ranjit Gangadharan)