Indian shares slip 0.4 pct, but buying reviving

* European mkts recovery boosts confidence, helps pare
losses

* Bharti gains as much as 6.7 pct on attractive valuations

* June industrial production jumps, but poor rains a worry

* Reliance Industries, ONGC slip as oil edges below $69

* TCS, Infosys, Larsen among other major losers
(Recasts; adds closing prices, analyst comments, details about
June industrial output, European markets performance)

By Pratish Narayanan

MUMBAI, Aug 12 (Reuters) - Indian shares pulled back from a
2.5 percent fall and ended down 0.4 percent on Wednesday after
a strong rebound in industrial output and higher European peers
helped revive investor interest.

The market had dropped more than 5 percent in the previous
five trading days on worries poor monsoon rains would dent
economic growth and the concerns weighed on companies such as
engineering and construction firm Larsen & Toubro (LART.BO).

Outsourcers Infosys Technologies (INFY.BO) and Tata
Consultancy Services (TCS.BO) also fell after rising for two
days on profit-taking and caution ahead of a rate decision in
the United States, their main market.

But telecoms firm Bharti Airtel (BRTI.BO), which is in
exclusive merger talks with South Africa's MTN (MTNJ.J),
climbed 5.8 percent to 404.85 rupees, making it the top gainer
on the main index.

Bharti shares, which rose as much as 6.7 percent during
trade, were a good defensive bet, but lack of clarity on the
structure of a possible deal with MTN remains an overhang, J.P.
Morgan analyst Manoj Singla said in a note to clients.

"Weighing the positives and negatives, we believe that
Bharti is a top-tier player with quality management and a
strong execution track record available at cheap valuations and
hence has limited absolute downside," Singla, who has a
"neutral" rating on the stock, said.

Macquarie Research analyst Shubham Majumder reiterated his
"outperform" rating on Bharti, and said a key trigger for the
stock's near-term performance would be the outcome of the MTN
deal.

"If the deal fails, markets would react positively," he
said. If Bharti's raised its offer price by 10 to 15 percent,
the stock could fall about 5 percent, and if the offer is
raised by more than 25 percent, a 10-15 percent drop in the
share price was possible, Majumder said.

The 30-share BSE index .BSESN ended down 0.36 percent, or
54.43 points, at 15,020.16, with 17 stocks declining, after
falling to as low as 14,701.05 at one stage.

June industrial output rose 7.8 percent, expanding at its
fastest pace in 16 months and beating forecasts by a wide
margin as higher salaries of government employees and stimulus
spending boosted consumer demand.

Economists said strong momentum in factory output could
help mitigate the effects of a poor monsoon season on overall
economic growth, but cautioned that the brisk rate of
industrial activity might not be sustainable despite other
recent positive signals. [ID:nBOM167869]

"We are not sure 7.8 percent is sustainable given that the
drought is likely to dampen consumption and delay investment,"
Atsi Sheth, chief economist at Reliance Equities, said.

Total rainfall since June 1, the start of India's
four-month monsoon season, has been 29 percent below normal and
the government said on Tuesday that more than a quarter of the
country's districts were prone to drought. [ID:nISL372941]
With just over 40 percent of agricultural land irrigated, farm
output is heavily reliant on rains and the shortfall could
potentially hurt rural demand, which accounts for more than
half of India's domestic consumption.

The BSE index nosed up 0.4 percent on Tuesday, after
shedding 5.6 percent over the past three sessions.

It had slid 3.25 percent last week on the rain concerns
after jumping 16 percent over the previous three weeks, buoyed
by a worldwide equities rally on strong corporate earnings and
improving signs of a global economic recovery.

"The downward trend could continue for a few more days
because we just don't know how much of a negative impact the
weak monsoon is going to have," Ambareesh Baliga, vice
president of Karvy Stock Broking, said.

The index has leapt about 87 percent from a 2009 low in
early March, and is up more than 55 percent this year after
slumping by more than half in 2008.

Analysts say a rush of liquidity pouring into equity
markets will help support the market in the near term as
investors look to buy on dips.

Infosys eased 1.9 percent to 2,042.75 rupees, while larger
rival Tata Consultancy slid 4.1 percent to 519.45 rupees.
Larsen & Toubro dropped 1.6 percent to 1,421.80 rupees.

In the broader market, losers led gainers 1,387 to 1,218 on
below-average volume of 376.5 million shares.

The 50-share NSE index .NSEI fell 0.3 percent to
4,457.50.

Asian shares were lower on Wednesday, with Japan's Nikkei
.N225 falling 1.4 percent, while MSCI's measure of other
Asian markets .MSCIAPJ was down 1.4 percent.

At 1054 GMT, the FTSEurofirst 300 .FTEU3 index of top
European shares was up 0.4 percent.