Indian stocks pull up from nosedive, end down 5 pct

(Updates index levels, adds fresh quotes)

By Hiral Vora

MUMBAI Jan 22 (Reuters) - Indian shares fell as much as 12.9 percent on Tuesday before ending down 4.97 percent, a seventh successive loss, as panicked investors sold amid margin calls on declining share portfolios and fears of a global downturn.

Share markets around the world sank for a second day on Tuesday, with Tokyo's market posting its biggest fall since the session after the Sept. 11, 2001, attacks on the United States, as fears of a U.S.-led global recession intensified. See [ID:nL22593368]

India's 30-share BSE index .BSESN closed 875.4 points down at 16,729.94, its lowest close since Sept. 21. India's two most valuable firms, Reliance Industries (RELI.BO) and state-run Oil and Natural Gas Corp (ONGC.BO) led the market lower.

The intra-day fall of 12.9 percent was larger than Monday's drop of almost 11 percent, but short of a 17 percent intra-day fall in May 2004 that followed an unexpected election result.

Buying interest led by state-run insurance firms helped the market recover some ground. At the close, the index was 21.1 percent below a record high hit on Jan. 10.

The 50-share NSE Nifty index .NSEI closed down 5.94 percent at 4,899.30 points, having plunged as much as 14.6 percent.

"Over time as better clarity emerges and sanity returns to the market, I think the Indian stock market should bottom out and outperform," said Chakri Lokapriya, who manages $1.3 billion worth stocks in BRIC markets for BNP Paribas in London.

"I would not say this is the bottom or not, but what I would say at the end of the year the market will close 25 percent higher from its end-December levels."

IPO SHORT CIRCUIT

A lot of funds have been tied up by Reliance Power's initial public offer, with the company saying it had received bids worth $190 billion for the $3 billion of shares on offer.

That has drained cash from the market and made it harder for investors to meet margin calls on their falling portfolios.

"I am getting calls from my broker who is threatening me to pay up my money or else he will sell off my portfolio," said Mayur Sanghvi, a cloth trader.

"Last week I put three applications for the Reliance Power IPO and do not have money to pay my broker," he said.

Margin trading is where investors trade shares without paying the full purchase price. Instead a margin or percentage is paid as collateral that has to be topped up if the share price falls.

Margin calls, both by brokers to investors and by exchanges to brokers, added to the pressure, with brokers saying they were unable to trade until they paid their margin calls.

"This was the worst day for the market ... our terminals were shut and we could not do anything," Dadhich Bhatt, a broker with Pragya Securities, said.

The BSE index fell 11.5 percent in the opening minutes of trade, triggering an automatic one-hour market halt and a call from the finance minister for calm. See [ID:nDEL188905].

A rally at the re-open was shortlived, as the market fell to 15,332.42, its lowest since Sept. 3. The market then recovered some losses again, with traders saying state-run Life Insurance Corp and General Insurance Corp were notable buyers.

"When we saw that trading had halted the first thing that came to my mind was, 'how do I reduce my huge losses?'," said Anand Dalal, managing director at Ashvin Chinubhai Securities.

"We did not want to panic but there was fear everywhere."

In the broader market 2,275 losers heavily outnumbered 148 gainers in a total volume of almost 382 million shares

Elsewhere, Karachi's 100-share index .KSE fell 0.65 percent to 13,759.50. Colombo's market was shut for a holiday.

STOCKS THAT MOVED:

* Reliance Industries Ltd fell 7.3 percent to 2,358.05 rupees, taking its losses over the past six sessions to 26.7 percent.

* ONGC fell 13.6 percent to 962.55 rupees, a seventh straight fall that has seen its shares lose 26.4 percent.

* ICICI Bank, the country's most valuable bank, fell 4.1 percent to 1,124.75 rupees, a two-month closing low, hit by poor sentiment for financials and banks across the globe.

MAIN TOP 3 BY VOLUME: * Reliance Natural Resources Ltd (RENR.BO) on 37.4 million shares. * Reliance Petroleum RPET.BO on 30.9 million shares. * Ispat Industries Ltd ISPT.BO on 23.3 million shares.

FACTORS TO WATCH * Rupee climbs smartly on stock recovery, exports [INR/] * Indian bonds yields at new 1-yr lows on rate view [IN/] * FOREX-Yen hits 2-½ year peak as stocks dive [FRX/] * Oil tumbles below $87 on U.S. recession fears [O/R] * GLOBAL MARKETS-Stocks hammered; investors flee to bonds

[MARKETS/AS] * For closing rates of Indian ADRs INADR

(Additional reporting by Manoj Dharra, Devidutta Tripathy; Editing by John Mair)