Indian shares fall 3 pct on global credit woes

(Updates to mid-morning)

NEW DELHI, July 8 (Reuters) - Indian shares fell more than
3 percent on Tuesday after fragile credit markets rattled Asian
and U.S. stocks, adding gloom to domestic inflation and
expectations for further monetary tightening.

Top private sector firm Reliance Industries (RELI.BO: Quote, Profile, Research) fell
3.7 percent to 1,954 rupees, extending the previous session's
decline on media reports the refiner may have to pay higher
taxes to help the government subsidise retail fuel prices.

Second-largest lender ICICI Bank (ICBK.BO: Quote, Profile, Research) was down 4
percent at 579.90 rupees as the financial sector took a beating
across world markets on credit worries.

The two stocks constitute nearly 23 percent of the main BSE
index , which was down 3.38 percent, or 457.15 points,
at 13,068.84 by 11:32 a.m. (0602 GMT). All but three of the 30
components lost ground.

The index had fallen for seven weeks in a row until last
Friday, the longest stretch of weekly losses in seven years,
losing 23 percent. It is down more than 35 percent on the year.

Daljeet Kohli, head of research at Emkay Global Financial
Services, said weak global sentiment for equity and political
factors at home had combined to pull the market down.

The ruling coalition's left allies were on the verge of
pulling out in protest against a U.S. nuclear deal, a move that
could lead to a vote of confidence in parliament.

The government has secured the support of a regional
Samajwadi Party to secure parliamentary majority, but it was
not clear what price it would have to pay.

"The pain is still not over," Kohli said. "The government
will have to depend on Samajwadi Party if the left withdraws.
It just changes the face of dependence."

No. 2 mobile operator Reliance Communications (RLCM.BO: Quote, Profile, Research),
whose exclusive tie-up talks with South Africa's MTN (MTNJ.J: Quote, Profile, Research)
ends on Tuesday, was down 1.4 percent at 413.90 rupees,
extending Monday's 4.2 percent fall.

Announcement of a deal looks unlikely as its dispute with
Reliance Industries (RELI.BO: Quote, Profile, Research) is yet to be resolved. Analysts
and media reports have said the Tuesday deadline could be
extended. See: [ID:nBOM343381]

In the broader market, losers outpaced gainers 3 to 1 on
volume of 82.1 million shares.

The 50-share NSE index was down 2.86 percent at
3,914.90.

Elsewhere in the region, Karachi's 100-share index
was down 0.61 percent at 11,805.63, while Colombo's All-share
index .CSE slid 0.49 percent to 2,389.39.

Asian stocks were weighed down by the financial sector
after sharp declines in shares of top U.S. mortgage firms
Fannie Mae (FNM.N: Quote, Profile, Research) and Freddie Mac (FRE.N: Quote, Profile, Research) on funding concerns.

STOCKS ON THE MOVE

* Leading lender State Bank of India (SBI.BO: Quote, Profile, Research) fell 5.1
percent to 1,112 rupees after the Economic Times said it would
have to make provisions for 7 billion rupees for the June
quarter on notional mark-to-market losses on its bond
investments due to a fall in bond prices.

* Textile firm First Winner Industries Ltd (FIST.BO: Quote, Profile, Research) was
down by a third from its issue price of 125 rupees on its
market debut. The shares had listed at 101.10 rupees on the
BSE.

* Reliance Infrastructure (RLIN.BO: Quote, Profile, Research) was down 8.5 percent at
712.50 rupees and Reliance Capital (RLCP.BO: Quote, Profile, Research) fell 5 percent to
985 rupees. Both firms are controlled by billionaire Anil
Ambani who runs Reliance Communications.

TOP THREE BY VOLUME

* IFCI Ltd (IFCI.BO: Quote, Profile, Research) on 5 million shares

* Reliance Natural Resources (RENR.BO: Quote, Profile, Research) on 3.8 million
shares

* First Winner Industries on 3.6 million shares

FACTORS TO WATCH
* For technical analysis double click on www.reutersindia.net
* Indian rupee drops as stocks fall
[INR/]
* Indian bond yields at 7-year high on tight cash
[IN/]
* FOREX-Dollar inches up vs euro, but credit worries weigh

[FRX/]
* Crude oil prices jump more than $1 on softer dollar [O/
R]
* GLOBAL MARKETS-Asia stocks sag as credit fears hurt banks
[MKTS/GLOB]
* US STOCKS-Financial worries weigh on Wall Street
[.N]
* For closing rates of Indian ADRs
INADR
(Reporting by Devidutta Tripathy; Editing by Ranjit
Gangadharan)