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Sensex Drops 3rd Day; Tata Motors Slips

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The BSE Sensex erased early gains and fell for a third day in a row on Tuesday, after European markets took fright on worries the region's debt woes could snowball into another banking crisis.

The benchmark 30-share Sensex shed 0.2 per cent, or 34.40 points to 16,467.44, its lowest close in two weeks. It had risen as much as 1.6 percent at one stage and then slipped nearly 0.8 percent.

Eighteen of its components ended lower, with financial stocks among the losers as investors braced for another rate rise on Friday.

"After the European markets opened, there was a lot of profit-taking," said Deepak Jasani, head of retail research at HDFC Securities. "There seems to be no conviction on part of buyers."

European markets and the euro fell on Tuesday after a report cast doubt on the idea China would provide financial support to Italy, leaving investors focussed on growing risks to European banks and the euro.

A Financial Times report that Italy had asked China to buy its debt had helped stocks recover some ground earlier but a second report poured cold water on those expectations.

Software services exporters, beaten down in recent weeks, climbed after the rupee weakened to its lowest level in more than 15 months, raising the prospect of higher forex earnings.

Tata Consultancy Services gained 0.8 per cent, Infosys rose 1.1 per cent and Wipro added 1.2 per cent. The sector index, down more than 30 per cent so far this year, rose 0.9 per cent.

Banking shares gave up early gains that were spurred by talk the Reserve Bank of India (RBI) would pause its 18-month long monetary policy tightening after one more rate rise this week. Industrial output growth had slumped to 3.3 percent in July as high borrowing costs crimped demand.

Monthly inflation data due on Wednesday is expected to set the tone for RBI's rate decision on Friday.

"There are different views on whether the RBI will raise rates or not, but it's quite possible that the peak of the cycle is around. But rates may not start falling in a hurry, with inflation being what it is," Jasani said.

India's wholesale price index (WPI) is likely to rise an annual 9.6 percent in August on rising food and fuel prices, a Reuters poll showed.

Largest lender State Bank of India fell 1.6 per cent, while rivals ICICI Bank and HDFC Bank dropped 1.2 per cent and 0.4 per cent respectively. Mortgage lender HDFC shed 1.2 per cent.

Leading listed real estate firm DLF rose 2.3 per cent after the Economic Times reported the company may raise as much as 40 billion rupees ($850 million) from sale of a key Mumbai land plot. A DLF spokesman declined to comment.

Other gainers included Bajaj Auto, up 1.7 per cent on expectation that rising rates and slowing demand for cars may benefit sales for its motorcycles. Car sales had fallen 10 per cent in August.

Leading truck and bus maker Tata Motors fell for a third straight session, slipping 4.6 per cent to its lowest close since May 2010. Last week, its group chief executive officer resigned, only 18 months after joining the company, prompting fears about the impact on its Jaguar-Land Rover luxury car unit.

Oil and Natural Gas Corp, due to launch an up to $2.5 billion follow-on share sale next week at a likely discount to the market price, slipped 1.2 percent.

In the broader market, 726 declines narrowly outnumbered 709 advances on heavy volume of 627.9 million shares.

The 50-share NSE index closed down 0.12 per cent at 4,940.95 points.

Stocks That Moved
* Biotechnology firm Biocon rose 1.7 per cent to 332.05 rupees after its head said the firm plans to list its research services unit Syngene within the next 18 months.

* Edible oil maker KS Oils rose 10 per cent after media reports the company was in talks to sell part or all of its businesses. The company clarified it has not entered into any concrete agreement with any party for sale of its business so far.

On Monday, its board had approved an investment of 2.5 billion rupees through issue of warrants or shares to investors or founders.

Top 3 By Volume On NSE
* Unitech on 22.4 million shares

* Jaiprakash Associates on 20.6 million shares

* Tata Motors on 16.04 million shares


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