Indian shares fall 2.8 pct on global worries

* World econ woes could hit foreign fund inflows

* Banks drop on concern govt borrowing will harden yields

* Autos, cement buck trend on improving domestic outlook
(Updates to close)

By Narayanan Somasundaram & Janaki Krishnan

MUMBAI, July 8 (Reuters) - Indian shares fell 2.8 percent
on Wednesday to their lowest close in more than a month as
economic jitters swept global financial markets raising
concerns about foreign fund flows.

Investors have begun worrying a global economic recovery
will not be as quick or robust as many had hoped. Losing stocks
outnumbered gainers in the ratio of more than 3:1 in the
broader market, while volume was average at 400 million shares.

Financial stocks fancied by foreign portfolio investors led
the fall, but auto and cement stocks bucked the trend after
auto sales rose for the fifth consecutive month [ID:nBOM443073]
and investors bet on infrastructure spend by the government.

"There is a temporary halt to the fund pouring in from
FIIs," said Deven Choksey, chief executive of brokerage KR
Choksey, referring to foreign institutional investors. "Global
investors are taking money home."

The main stock index .BSESN dropped 2.83 percent, or
401.30 points, lower at 13,769.15 points, its lowest close
since May 26. Twenty-four components ended in the red. It fell
as low as 13,701.76 during trade.

"Global sentiments are negative no doubt, but more than
that the market was overdue for a correction," Choksey said.

The benchmark, which has risen in 16 out of the last 17
weeks, has fallen 7.7 percent so far this week after the budget
disappointed investors on Monday. It is still up 42.7 percent
this year.

Foreign funds have put in just $211.4 million this month
after net purchases of close to $8 billion between mid-March
and mid-June when the benchmark almost doubled.

Traders said investors turned wary about financial stocks
on concerns heavy government borrowing could harden bond yields
and erode profits of banks, who are the biggest buyers of
government paper.

State Bank of India (SBI.BO) Chairman O.P. Bhatt said on
Tuesday interest rates could harden in six months as demand for
loans picks up. [ID:nBOM391565]

Shares in State Bank, the country's biggest lender, fell 3
percent to 1,587 rupees and ICICI Bank (ICBK.BO) dropped 5.8
percent to 654.55, their lowest close since mid-May.

The bank index .BSEBANK fell 4.1 percent to its worst
close since the ruling coalition won a bigger election mandate
in May.

"Corporate earnings will be the next driver for the market,
in the short term. They are expected to be better than the
previous quarter," said Vikas Khemani, co-head institutional
equities at Edelweiss Securities.

"But for a longer rally it depends on how the government
takes the growth momentum forward."

Outsourcing bellwether Infosys Technologies (INFY.BO) is
expected to report on Friday its quarterly earnings rose 7.3
percent on year. [ID:nBOM387414]

Auto stocks got a fillip from the government's focus on the
farm sector, which could boost demand for tractors and utility
vehicles while increased allocation for urban schemes will help
sales of buses, traders said.

Top truck and bus leader Tata Motors (TAMO.BO) climed 0.5
percent to 281.15 rupees, No. 1 car producer Maruti Suzuki
(MRTI.BO) rose 2.1 percent to 1,102.95 rupees and top
motorcycle maker Hero Honda Motors (HROH.BO) firmed 1.5 percent
to 1,459.20 rupees.

Leading cement maker ACC (ACC.BO) led cement makers up,
rising 3.1 percent to 786 rupees on fund buying. Ambuja Cements
(ABUJ.BO) climbed 2.4 percent to 93.45 rupees.

The broader 50-share NSE index ended down 2.93
percent at 4,078.90.

MAIN TOP 3 BY VOLUME

* Unitech Ltd (UNTE.BO) on 36.4 million shares

* Suzlon Energy (SUZL.BO) on 18 million shares

* Ispat Industries (ISPT.BO) on 12.5 million shares

STOCKS THAT MOVED

* Bharati Shipyard (BHAR.BO) fell 5.1 percent to 148.85
rupees, after the shipbuilder raised its open offer for a
controlling stake in Great Offshore Ltd (GOFS.BO), sparking
concerns the deal could be over-valued, a dealer said.

Bharati revised its bid for a 20 percent stake in Great
Offshore to 405 rupees a share from 344 rupees earlier, it said
late on Tuesday. [ID:nBOM416460]

* IndusInd Bank (INBK.BO) rose 7.1 percent to 83.25 rupees
after the private sector lender said April-June net profit
soared. [ID:nBMB005801]

* State-run oil retailers Indian Oil Corp (IOC.BO),
Hindustan Petroleum Corp (HPCL.BO) and Bharat Petroleum Corp
(BPCL.BO) rose between 2.9 percent and 4.3 percent after global
crude prices fell for the sixth consecutive day.

* Iron ore miners Sesa Goa (SESA.BO) and NMDC Ltd (NMDC.BO)
rose 2 percent and 4.3 percent respectively on talks Chinese
steel producers had agreed to new iron ore prices for six
months. [ID:nSP480484]

FACTORS TO WATCH
* For technical analysis, double click on
www.reutersindia.net
* Indian rupee at 2-week low as shares fall
[INR/]
* Indian swap rates slip, mirroring govt bond yields
[IN/]
* FOREX-Dollar broadly steady; yen ascendant
[FRX/]
* Oil falls 6th day toward $62 on economic doubts
[O/R]
* Economy fears hit stocks, oil; yen big gainer
[MKTS/GLOB]
* Index futures point to mixed Wall St open
[.N]
* For closing rates of Indian ADRs
INADR
(Editing by Ranjit Gangadharan)