Indian shares rally 2.5 pct; Reliance, Infosys up

* Optimism about world economy underpins rise

* Weaker dollar pushing funds to Indian stocks - trader
(Updates to close)

By Ami Shah

MUMBAI, Nov 11 (Reuters) - Indian shares rallied 2.5
percent on Wednesday, led by Reliance Industries Ltd (RELI.BO)
and Infosys Technologies (INFY.BO), on renewed optimism about
the world economy.

Firmer global markets on hopes U.S. interest rates will
remain near zero for some time and robust Chinese factory
output data helped set the ground for the rise, traders said.

Ajay Parmar, head of institutional equities at Emkay
Global, said a weak dollar was encouraging foreign funds to
plough cash into emerging markets such as India.

Energy giant Reliance Industries, which has the heaviest
weight on the main index, climbed 2.7 percent to 2,107.95
rupees, taking its gains so far this month to 9.1 percent. The
stock had shed 12.3 percent in October.

The 30-share BSE index .BSESN closed up 2.49 percent, or
409.04 points, at 16,849.60, taking its gains so far in
November to 6 percent. All of its components gained.

Foreign funds have moved a net $14.5 billion into Indian
stocks so far this year, propelling the benchmark index up
nearly three-quarters in the period.

"It is a liquidity-driven rally. The stocks which were
hammered are being pulled up," said Deven Choksey, managing
director and CEO of K. R. Choksey.

"It is not that anything is wrong fundamentally, but its
time to get cautious,"

Software companies rose after the Economic Times quoted the
president of industry body Nasscom as saying the industry was
expected to grow 4-7 percent in the current fiscal year and
return to growth of more than 10 percent next year.

Top outsourcer Tata Consultancy (TCS.BO) rose 3.3 percent,
second-ranked Infosys climbed 4.1 and third-ranked Wipro gained
3.9 percent.

Auto companies firmed after October car sales rose the
fastest in over two years, bolstering hopes the industry was
back on track for robust growth. [ID:nDEL2193]

Top vehicles maker Tata Motors (TAMO.BO) raced 4.7 percent
to 621.55 rupees while rival Mahindra & Mahindra (MAHM.BO)
closed 2.9 percent higher at 1,032.20 rupees.

ICICI Bank (ICBK.BO) firmed 3.4 percent to 924.65 rupees, a
day after its chief executive said bad loans had peaked and
loan quality should improve. [ID:nBMA006395]

Metals stocks rose on improving outlook for base metal
prices, Choksey said.

Sterlite Industries (STRL.BO) rose 6.5 percent to 858.05
rupees, while Tata Steel (TISC.BO) and Hindalco (HALC.BO)
climbed 4.3 percent and 3.9 percent respectively.

In the broader market, gainers outnumbered losers in a
ratio of 1.7:1 on better volume of 425 million shares.

The 50-share NSE index .NSEI closed 2.5 percent higher at
5,003.95. It closed above 5,000 for the first time since Oct.
21.

STOCKS THAT MOVED

* Rural Electrification Corp (RURL.BO) rose 5.5 percent to
228.80 rupees after the power sector lender said it received
the federal nod for its follow-on public offer of 171.73
million shares. [ID:nBOM341080]

The other contenders for follow-on offers Steel Authority
of India (SAIL.BO), NMDC (NMDC.BO) and Shipping Corp of India
(SCI.BO) rose 1.7 percent to 8.2 percent.

* State-run oil marketing companies Hindustan Petroleum
(HPCL.BO), Bharat Petroleum (BPCL.BO) and Indian Oil Corp
(IOC.BO) edged 0.5-1.9 percent lower as oil prices rose above
$79 a barrel, which would hurt them as they are forced to sell
products at mandated discounts.

MAIN TOP 3 BY VOLUME

* Suzlon Energy (SUZL.BO) on 15.9 million shares

* Mahindra Satyam SATY.b on 12.1 million shares

* GVK Power (GVKP.BO) on 11.3 million shares

FACTORS TO WATCH
* For technical analysis double click on www.reutersindia.net
* India rupee report
[INR/]
* India bond report
[IN/]
* Dollar index hits 15-month low, Aussie rises
[FRX/]
* Oil rise above $79 on weak dollar, China
[O/R]
* Dollar hits 15-mth low, stocks firm on rate view
[MKTS/GLOB]
* U.S. stock index futures point to early gains
[.N]
* For closing rates of Indian ADRs
INADR
(Editing by Ranjit Gangadharan)