Indian shares flip-flop; State Bank rises

* Volatility seen continuing until budget in early July

* Expensive valuations a concern

* Buying by long-term investors to provide support (Updates to mid morning)

MUMBAI, June 18 (Reuters) - Indian shares bounced around their previous close on Thursday, as bouts of profit taking on an 80 percent rally since early March were offset by some buying by long-term investors a day after the market dropped 2.9 percent.

"Whatever correction is happening is for the good because the market was on a one-way ticket to the moon," V.K. Sharma, head of research at Anagram Stock Broking, said.

"But yes, those with a one-year horizon, should be buying on these dips."

Energy giant Reliance Industries (RELI.BO) extended losses into a fourth session, falling as much as 2.3 percent to 2,003 rupees, following an unfavorable court ruling on gas supplies. [ID:nBOM433343]

Power equipment firm BHEL (BHEL.BO), which fell 1.5 percent to 2,058 rupees, and private-sector lender HDFC Bank (HDBK.BO) that dropped 1.6 percent to 1,522 rupees were among the other major losers.

But outsourcer Infosys Technologies (INFY.BO) rose 1.1 percent to 1,729.50 rupees, while government-run lender State Bank of India (SBI.BO) gained 2.5 percent to 1704.20 rupees, limiting losses in the main index.

By 10:53 a.m. (0523 GMT), the 30-share BSE index .BSESN was flat at 14,515.64 points. Trading was choppy, with the benchmark falling as much as 1.3 percent and rising 0.3 percent at one stage.

Although the market may see some profit-taking on concerns of rising valuations after the market leaped 80 percent from a 2009 low in early March, expectations the recently re-elected coalition will unveil reform plans in its annual budget on July 6 would provide support, traders said.

"This kind of volatility and market upheaval will only increase going forward, and it is not going to be a one- or two-day affair," Anagram's Sharma said.

A stronger mandate won by the ruling Congress party-led coalition in May has raised hopes for quick-paced reforms and stake sales to attract investments.

Investors are awaiting data on the wholesale price index, expected at around midday (0630 GMT). India's wholesale price index (WPI) is forecast to have fallen in the year to June 6 for the first time in at least three decades, heralding a period of annual deflation that analysts said could last up to four months. [ID:nBOM57126]

Fourteen components in the main index were down on Thursday, while in the broader market, losers led gainers by almost 3 to 1 on relatively moderate volume of 132 million shares.

The 50-share NSE index was fell 0.6 percent to 4,331.95.