Indian shares fall 0.7 pct; NHPC makes muted debut

* Weak European markets hit investor sentiment

* Reliance leads losses; NHPC ends up 1.9 pct on debut

* HDFC, L&T, among other major losers

* Maruti races 7.6 pct to record close on strong Aug sales
(Updates with closing prices, details, analyst comments,
European markets performance)

By Pratish Narayanan

MUMBAI, Sept 1 (Reuters) - Indian shares erased gains of as
much 1.6 percent and ended 0.7 percent lower on Tuesday, their
second straight fall, as a retreat by European peers hit
investor confidence and sparked profit-taking on a recent
rally.

"Most of the fundamental factors, like improved GDP, are
already factored into the market," T.S. Harihar, vice president
at ICICI Securities, said.

"In the short term, at least till the next quarterly
results that are a month and a half away, the market will
continue to trend according to overseas markets."

State-run hydropower generator NHPC Ltd (NHPC.BO) rose 1.9
percent to 36.70 rupees on its trading debut, trailing market
expectations after the company's $1.25 billion IPO was heavily
oversubscribed.

The muted debut is the second in a row from a major Indian
company and may dampen enthusiasm for future listings.
[ID:nBOM341516]

"The listing is fairly below market expectations which was
around 40-42 rupees," said Ambareesh Baliga, vice-president at
Karvy Stock Broking.

Maruti Suzuki (MRTI.BO) shot up 7.6 percent to 1,545.95
rupees, its highest close, after the leading car maker's August
sales raced 42 percent to 84,808 units from the same period
last year.

Top mortgage lender Housing Development Finance Corp
(HDFC.BO) slid 2.5 percent to 2,412.95 rupees and engineering
and construction firm Larsen & Toubro (LART.BO) eased 1.1
percent to 1,550.05 rupees to lead losses in the main index.

Energy giant Reliance Industries (RELI.BO), which has the
most weight in the main index, fell 1.1 percent to 1,982
rupees, while state-run Oil and Natural Gas Corp (ONGC.BO)
slipped 2 percent to 1,161.75 rupees.

"India is looking to other markets for support. There are
no real domestic triggers to move the market," Arun Kejriwal, a
strategist at research firm KRIS, said.

Non-ferrous metals producer Sterlite Industries (STRL.BO)
fell 2.9 percent to 655.85 rupees as copper prices slipped more
than 3 percent on Tuesday.

A U.S. federal judge recommended Mexican miner Grupo
Mexico's (GMEXICOB.MX) bid to take control of U.S. copper miner
Asarco LLC. Sterlite had made a bid for the miner as it emerges
from bankruptcy.

Judge Richard Schmidt of the U.S. Bankruptcy Court in
Corpus Christi, Texas, said Grupo Mexico's was the better of
two plans, as it was more likely to pay Asarco's creditors in
full. [ID:nN31457007]

Analysts have said investors were not pricing in a possible
acquisition of Asarco into Sterlite's stock, and so the latest
court recommendation was not expected to significantly impact
the Indian firm's shares.

"The recommendation of the U.S. Bankruptcy Court, which in
our view is not binding but is expected to provide guidance,
would now move to U.S. District Court Judge for final
confirmation," JPMorgan analyst Pinakin Parekh said.

"We are currently not building in Asarco into our
financials," said Parekh, who has an "overweight" rating on
Sterlite's stock.

The 30-share BSE index .BSESN ended down 0.74 percent, or
115.45 points, at 15,551.19 points -- its lowest close since
Aug. 21 -- with 23 stocks declining.

On Monday, the benchmark had fallen for the first time in
seven days as equity markets worldwide slid on profit-taking
after a recent rally.

Analysts say a rush of liquidity pouring into emerging
markets will support stocks in the near term as investors look
to buy on dips even though worries about a weak monsoon, high
valuations and looming inflation weigh.

India warned on Tuesday that wholesale price inflation
could end the fiscal year above the central bank's forecast of
5 percent as a poor monsoon drives up food costs, adding to a
chorus of warnings on prices. [ID:nHKG492156]

Drought has affected 278 districts, increasing its spread
despite higher rainfall in the past two weeks and making the
rising prices of sugar and lentils the big worry for the
country, the government said on Monday. [ID:nDEL506814]

Indian manufacturing activity expanded at its slowest pace
in five months in August as companies struggled to raise
selling prices despite higher costs, a survey showed on
Tuesday. [ID:nBMA005731]

The economy grew 6.1 percent in the June quarter from a
year earlier, meeting forecasts as government stimulus helped
spur demand, but the poor monsoon threatens to erode growth
later in the year even as it drives prices higher.
[ID:nHKG499387]

In the broader market, losers led gainers 1,663 to 1,169 on
relatively heavy volume of 759.4 million shares.

The 50-share NSE index .NSEI fell 0.8 percent to
4,625.35.

Other Asian shares were higher, with Japan's Nikkei .N225
rising 0.4 percent, while MSCI's measure of other Asian markets
.MSCIAPJ was up 0.9 percent.

At 1042 GMT, the pan-European FTSEurofirst 300 .FTEU3
index of top shares was down 1.2 percent.

MAIN TOP 3 BY VOLUME

* NHPC on 193.6 million shares

* Suzlon Energy (SUZL.BO) on 29.1 million shares

* Mahindra Satyam (SATY.BO) on 25.5 million shares

STOCKS THAT MOVED

* Britannia Industries Ltd (BRIT.BO) rose 1.5 percent to
1,672.05 rupees after the company on Monday said it had
received 220 million rupees from France's Danone (DANO.PA) to
settle a dispute over the 'Tiger' brand of biscuits.
[ID:nBOM75972]

* TVS Motor Co (TVSM.BO) advanced 3.9 percent to 50.25
rupees after the two-wheeler maker reported a 10.95 percent
jump in August sales to 126,842 units from a year ago.

* Drugmaker Strides Arcolab (STAR.BO) gained 2.1 percent to
152.70 rupees after it said it secured an order from the Indian
government to supply 740,000 doses of its generic version of
Roche's (ROG.VX) anti-viral Tamiflu, used to treat the H1N1
flu.

FACTORS TO WATCH
* For technical analysis double click on www.reutersindia.net
* Indian rupee reverses gains as stocks fall over 1 pct
[INR/]
* Indian bond yields steady on lack of cues
[IN/]
* Sterling slips on dlr, euro after UK PMI dips
[FRX/]
* Oil climbs back above $70 ahead of U.S. data [O/R]
* Stocks wobble, yen near 7-week high [MKTS/GLOB]
* Index futures point to lower open for U.S. shares
[.N] * For closing rates of Indian ADRs

INADR (Editing by Ranjit Gangadharan)