Indian shares rally 2 pct on U.S. plan; banks jump

* Shares ride wave of improved optimism across world

* Banks lead rise on better outlook for financials

* Economic, political worries could temper gains
(Updates to mid morning)

MUMBAI, March 24 (Reuters) - Indian shares rallied more
than 2 percent on Tuesday, spearheaded by financial stocks
after a U.S. plan to rid toxic assets from bank balance sheets
boosted investor confidence across the world.

Leading private-sector lenders ICICI Bank (ICBK.BO) climbed
more than 6 percent, while HDFC Bank (HDBK.BO) jumped as much
as 10.1 percent as the outlook for the battered sector seemed
to be stabilising.

The market is riding a renewed wave of investor optimism
from Wall Street to Asia, but uncertainty about the slowing
Indian economy and political outlook could temper gains,
traders said.

"The elections uncertainty will not allow the market to
keep going up," Ambareesh Baliga, vice president at Karvy Stock
Broking, said.

By 11:25 a.m. (0555 GMT), the 30-share BSE index .BSESN
was up 2.4 percent at 9,651.53 points, with 26 stocks
advancing.

The benchmark had jumped 5.1 percent on Monday, its biggest
one-day rise since early December, after rallying more than 7
percent in the previous two weeks.

India goes to the polls in April and May, and early
estimates indicate a fractured mandate with neither of the
country's two main political parties unlikely to get a majority
in parliament.

This comes as economic growth is forecast to fall below 6
percent to a seven-year low in 2009/10 after the global crisis
hits Asia's third-largest economy harder than expected.

"The worst is not behind us," Baliga said.

Still, ICICI rose 6.2 percent to 368 rupees, while HDFC
Bank climbed 9.5 percent to 968.50 rupees. Government-run State
Bank of India (SBI.BO) gained 5.6 percent to 1,080.45 rupees.

Reliance Industries (RELI.BO), which has the biggest weight
on the main index, was up 1.4 percent at 1,460 rupees as the
energy firm gets ready to start pumping gas from its Krishna
Godavari basin field off India's east coast.

Tata Motors (TAMO.BO) rose 1 percent to 167.75 rupees, a
day after it launched the Nano, the world's cheapest car.

In the broader section, advancers outnumbered losers by
more than 2 to 1, on relatively moderate volume of 123.7
million shares.

The 50-share NSE index was up 2.3 percent at
3,007.30.

Asian shares rose to their best level in two months as the
U.S. plan lifted investor confidence across the region. Japan's
Nikkei .N225 gained 3.4 percent, while MSCI's measure of
other Asian markets .MSCIAPJ was up 1.9 percent.

MAIN TOP 3 BY VOLUME

* Suzlon Energy (SUZL.BO) on 6.6 million shares

* Reliance Natural Resources (RENR.BO) on 5.6 million
shares

* Unitech (UNTE.BO) on 4.5 million shares

STOCKS THAT MOVED

* United Spirits Ltd (UNSP.BO) rose 5.2 percent to 676
rupees after a block deal was struck for 4.09 million shares,
or 4.1 percent of its equity, at 648 rupees on the NSE.

* Bombay Rayon Fashions Ltd (BRFL.BO) gained 3.4 percent to
149.40 rupees after its board approved issuing 18 million
shares, or 20.67 percent of equity, to the Netherlands' AAA
United BV for 185 rupees each to raise 3.33 billion rupees.

FACTORS TO WATCH
* For technical analysis double click on www.reutersindia.net
* Indian rupee rises for 5th day on stocks rally
[INR/]
* Indian federal bond yields rise before auctions
[IN/]
* Yen hits multi-month lows as stocks extend gains
[FRX/]
* Oil falls after stocks rally, risk appetite returns [O/R]
* Asia stocks extend rally; risk-taking revives [MKTS/GLOB]
* Wall St soars 7 pct on bank plan debut

[.N] * For closing rates of Indian ADRs

INADR (Reporting by Pratish Narayanan; Editing by
Ranjit Gangadharan)