Financials power Indian shares to 17-month high

* Sensex gains 1.2 pct; State Bank leads

* Autos rally on better earnings hopes, M&M up 6.1 pct

* Telecom stocks dip on slower GSM subscriber additions
(Updates to close)

By Ami Shah

MUMBAI, Oct 14 (Reuters) - India's main stock index raced
to a 17-month high on Wednesday as the market caught up with
sharp gains across the region after a day's holiday, with
financial issues leading the surge on improving economic
outlook.

Investors were also upbeat after a top policy adviser said
the central bank was likely to hold interest rates at a near
decade-low when it reviews policy on Oct. 27, reinforcing
expectations the government's priority was to boost growth.
[ID:nDEL488547]

The 30-share BSE index .BSESN closed up 1.2 percent, or
204.44 points, at 17,231.11, with 25 of its components
advancing. It rose to 17,274.59 during trade, its highest since
May 21, 2008.

"We may rise another 500-600 points from here but we should
correct after that, as we have risen too fast," said Amitabh
Chakraborty, president of equities at Religare Capital.

He said profit-taking was imminent.

The market has gained almost 79 percent so far this year,
and the benchmark has more than doubled from 8,047.17 points
struck in early March.

Surging foreign portfolio investment on the back of a
recovering economy have underpinned the market, with the inflow
since the start of January edging towards $13 billion -- about
the same that had flowed out last year.

"It is all a money game right now," said Naresh Kumar Garg,
CEO of Sahara Mutual Fund. "Investors should await more cues
and be more careful."

State Bank of India (SBI.BO) led the gainers after the top
lender said it was looking to raise up to $1 billion in bonds
to fund growth. The stock closed up 4.5 percent at 2,269.45
rupees.

Metals maker Sterlite Industries (STRL.BO) climbed 5.4
percent to 852.40 rupees after Morgan Stanley raised its
12-month price target on the stock to 963 rupees.

"In our view, Sterlite offers one of the best and most
balanced growth opportunities in Indian metals," U.S. brokerage
said in a note.

Housing Development Finance Corp (HDFC.BO) added 1.5
percent to 2,799.60 rupees, after it reported a
higher-than-expected 24 percent rise in its second-quarter net
profit late on Monday.

"Given the strong rebound in mortgage loans and
disbursements, we expect HDFC to gain earnings traction in 2H
FY10, which will continue into FY11," BNP Paribas Securities
said in a note reiterating a 'buy' on the stock.

Automobile companies stepped on the gas on expectations for
strong earnings as sales volumes accelerated in recent months.

Top utility vehicle maker Mahindra and Mahindra (MAHM.BO)
climbed 6.1 percent while leading vehicle maker Tata Motors
(TAMO.BO) firmed 4.1 percent.

Engineering and construction firm Larsen & Toubro (LART.BO)
added 2 percent to 1,689.35 rupees, after it won orders worth
$210 million. [ID:nBMA006148]

Private sector lender HDFC Bank (HDBK.BO) added 0.1 percent
in seesaw trade, after a forecast-beating 30 percent rise in
quarterly net profit. [ID:nBOM444725]

Telecom companies bucked the trend and dropped after slower
subscriber additions at leading GSM mobile operators Bharti
Airtel (BRTI.BO) and Vodafone Essar (VOD.L) in September amid
intense price competition. [ID:nBOM541164]

Bharti dropped 3.25 percent to 339.40 rupees and Reliance
Communications (RLCM.BO) fell 6.5 percent to 231.60 rupees.

Around 507 million shares changed hands on the Bombay Stock
Exchange, with advancing shares outnumbering declining ones in
the ratio of 1.6:1.

The 50-share NSE index .NSEI closed 1.3 percent higher at
5,118.20.

STOCKS THAT MOVED

* Bajaj Auto Finance (BJFN.BO), the consumer durables
financing arm of the Bajaj Group, jumped nearly 14 percent to
324.05 rupees, after its September quarter net profit shot up
almost five times.

* Private sector lender IndusInd Bank (INBK.BO) rose 5.35
percent to 124.10 rupees, after its quarter net profit more
than doubled from a year ago.

* State refiners Indian Oil Corp (IOC.BO), Bharat Petroleum
Corp (BPCL.BO) and Hindustan Petroleum Corp (HPCL.BO) dropped
2.25-3.2 percent as oil prices tested 2009 highs. The refiners
are forced to sell products at state-set prices.

MAIN TOP 3 BY VOLUME

* Ispat Industries ISPT.BO on 11.5 million shares.

* Unitech (UNTE.BO) on 11.2 million shares.

* Sesa Goa (SESA.BO) on 9.6 million shares.

FACTORS TO WATCH
* For technical analysis double click on www.reutersindia.net
* India rupee report
[INR/]
* India bond report
[IN/]
* Dollar falls broadly, euro climbs to 14-mth high
[FRX/]
* Oil sets 2009 high on weak dollar, economy
[O/R]
* Stocks hit 12-mo highs, dlr at 14-mo low
[MKTS/GLOB]
* Futures sharply higher after Intel Q3; JPMorgan eyed
[.N]
* For closing rates of Indian ADRs
INADR
(Editing by Ranjit Gangadharan)