Indian shares drop 1.3pct but see hope in left exit

(Updates to close)

By Devidutta Tripathy

NEW DELHI, July 8 (Reuters) - Indian shares fell 1.3
percent on Tuesday after global credit woes rattled markets
across the globe, but the exit of communist allies of the
government helped shore up sentiment on hopes the move would
help push reforms.

Shares in state-run firms rose on expectation the
government would pursue privatisation. Leading lender State
Bank of India (SBI.BO: Quote, Profile, Research) reversed early falls to close 2.8
percent higher at 1,204.45 rupees.

State-run power producer NTPC Ltd (NTPC.BO: Quote, Profile, Research) raced 3.6
percent to 161.20 rupees. The public sector firms index
gained 0.82 percent.

The left parties that have stalled the government's
privatisation reform for four years said on Tuesday they were
withdrawing their support to protest a civilian nuclear deal
with the United States and would ask the president to call a
vote of confidence. See [ID:nISL227896].

The move was expected and no immediate threat was seen to
the government, which had secured support from a regional
party.

Bond yields came off highs and the rupee strengthened on
the news.

Abheek Barua, chief economist at HDFC Bank, said he
expected the government to push privatisation and pension
reforms, higher foreign limits in insurance and more liberal
norms for foreign banks, all of which had been stalled by the
left parties.

The benchmark BSE 30-share index closed 176.34
points lower at 13,349.65, with 10 components gaining. It had
fallen as much as 3.5 percent in the morning before the left
parties pulled out.

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 34 percent on the year.

"One uncertainty is over and nothing is likely to happen to
the government. The market is drawing some comfort from that,"
said Dipak Acharya, a fund manager at BoB Asset Management.

He said the market was looking forward to first quarter
company results, which would set the trend.

"They could not be as good as we have seen in recent years,
but as advance tax payments show we will still see comfortable
numbers," Acharya said.

Top private sector firm Reliance Industries (RELI.BO: Quote, Profile, Research) fell
2.4 percent to 1,978.60 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.

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, closed down 1.1 percent at 415.40 rupees,
extending Monday's 4.2 percent fall.

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

In the broader market, 1,420 losers were ahead of 1,156
gainers on volume of 286.1 million shares.

The 50-share NSE index fell 1.03 percent to
3,988.55.

Elsewhere in the region, Karachi's 100-share index
fell 0.55 percent to 11,813.24, while Colombo's All-share index
.CSE slid 1.19 percent to 2,372.50.

STOCKS THAT MOVED

* State-run oil marketing firms Indian Oil (IOC.BO: Quote, Profile, Research) rose
1.3 percent to 352.40 rupees, Bharat Petroleum (BPCL.BO: Quote, Profile, Research) gained
5.5 percent to 251.40 rupees and Hindustan Petroleum (HPCL.BO: Quote, Profile, Research)
added 5.4 percent to 202.60 rupees.

* Textile firm First Winner Industries Ltd (FIST.BO: Quote, Profile, Research) fell
28.4 percent on its market debut to close at 89.50 rupees from
its issue price of 125 rupees.

TOP THREE BY VOLUME

* Reliance Natural Resources (RENR.BO: Quote, Profile, Research) on 28.4 million
shares

* IFCI Ltd (IFCI.BO: Quote, Profile, Research) on 24.7 million shares

* First Winner Industries on 13.6 million shares

FACTORS TO WATCH
* For technical analysis double click on www.reutersindia.net
* Indian rupee trims losses after communists withdraw
[INR/]
* Indian bond yields ease on left exit, reform hopes
[IN/]
* FOREX-Risk averse investors sweep yen, Swiss franc higher

[FRX/]
* Oil steadies on easing storm concerns, dollar
[O/R]
* GLOBAL MARKETS-World stocks at 21-month low as banks plunge
[MKTS/GLOB]
* US STOCKS-Wall Street set to open lower in world sell-off

[.N]
* For closing rates of Indian ADRs
INADR
(Editing by Ranjit Gangadharan)