Indian shares post biggest weekly fall in 8 mths

* BSE index falls 1.8 pct on day, down 9.4 pct on week

* Hedge funds among big sellers - fund manager

* More pain seen next wk as poor rains, recovery doubts
weigh

* Infosys bucks trend, rallies on strong result
(Updates to close)

By Janaki Krishnan

MUMBAI, July 10 (Reuters) - Indian shares fell 1.8 percent
on Friday and posted their biggest weekly fall in more than
eight months as concern about the economy kept investors
jittery, but Infosys bucked the trend and rallied on strong
quarterly result.

Infosys Technologies (INFY.BO), the country's No. 2
outsourcer, reported a better-than-expected 17 percent rise in
June quarter profit and marginally raised full-year forecast
but warned the business environment was still challenging.
[ID:nBOM468675]

However, a poor start to monsoon rains, crucial for India's
domestic demand-led economy, and lingering concern about a
world recovery weighed.

The 30-share BSE index .BSESN fell 1.84 percent, or
253.24 points, to 13,504.22, its lowest close after the ruling
coalition won re-election in mid-May and triggered a strong
rally.

"I have been expecting a fall but not to this extent," said
Ambareesh Baliga, vice president, Karvy Stock Broking. "Some
foreign funds were selling."

Twenty-four index components ended down in choppy trade as
a pullback of more than 1 percent at one stage triggered heavy
profit-taking in the last half hour.

"The immediate reason for the fall is a sell-off by some
hedge funds due to redemption pressures from their investors.
The biggest worry for the market, apart from the monsoons, is
the global economic crisis," said R.K. Gupta, managing
director, Taurus Mutual Fund.

The benchmark index lost 9.4 percent on the week in its
sharpest fall since last Oct. 26, with Monday's annual budget
setting the trend as big government borrowing plans and few
expected reforms disappointed investors.

"Now that the budget is over the market will come back to
basics," said Gaurav Dua, head of research at Sharekhan, adding
traders and investors would be looking more closely at
valuations.

The BSE index is still up 40 percent in 2009 after an
almost 50 percent rally in the June quarter.

"Markets are going to be tentative next week on account of
monsoons, quarterly earnings, global cues and most important
foreign fund flows," said Arun Kejriwal, director of research
firm KRIS.

Farm Minister Sharad Pawar told parliament on Friday the
poor monsoon rains in northern parts of India were a serious
problem. [ID:nDEB000741]

Rains have been 8 percent below normal in early July,
reviving after the driest June in 83 years, but water in the
main reservoirs has more than halved, putting at risk even
winter-sown oilseeds and wheat. [ID:nBOM469427]

Higher than expected industrial output in May also failed
to move the market, with traders shrugging it off as historical
data. Output rose 2.7 percent in May, above a Reuters poll
forecast of 1.4 percent. [ID:nDEL55429]

Energy giant Reliance Industries (RELI.BO), which led the
index losers, fell nearly 4 percent to 1,778.40 rupees. The
stock has fallen 12.3 percent this week, the second steepest
weekly slide this year.

Infosys firmed 3 percent to 1,726.50 rupees and spurred
other outsourcers. Bigger rival Tata Consultancy Services
(TCS.BO) rose 1.6 percent to 394.65 rupees, while No. 3
outsourcer Wipro Ltd (WIPR.BO) gained 3.4 percent to 384.70
rupees.

In the broader market, losers outnumbered more than 2:1 on
moderate volume of 333 million shares.

The 50-share NSE index .NSE, or Nifty, closed down 1.9
percent at 4,003.90 points.

"The market will be volatile next week, and the Nifty can
fall below 3,800," Gupta said.

STOCKS THAT MOVED

* Mahindra Satyam (SATY.BO), formerly Satyam Computer
Services, rose 2.05 percent to 74.50 rupees after it said late
on Thursday it had signed a 5-year multi-million dollar support
contract with GlaxoSmithKline Plc (GSK.L).

* Punj Lloyd (PUJL.BO) rose as much as 7 percent after its
Singapore unit won projects worth $1.2 billion in Libya, but
closed down 0.7 percent at 185 rupees on profit-taking.

* Sterlite Industries (STRL.BO) rose 3.3 percent to 575.70
rupees after its parent Vedanta Resources (VED.L) said it would
begin bauxite mining for its alumina plant in eastern India in
October and would invest $1.2 billion to expand its capacity
sixfold by 2011. [ID:nDEL283638]

MAIN TOP 3 BY VOLUME

* Unitech Ltd (UNTE.BO) on 23.3 million shares

* Suzlon Energy (SUZL.BO) on 21.1 million shares

* Mahindra Satyam (SATY.BO) on 20 million shares

FACTORS TO WATCH
* For technical analysis double click on www.reutersindia.net
* Indian rupee report
[INR/]
* Indian bond report
[IN/]
* Dlr, yen gain on investor caution;euro falls
[FRX/]
* Oil below $60, set for biggest weekly fall since Jan
[O/R]
* Earnings worries weaken stocks, oil below $60
[MKTS/GLOB]
* US Stock futures signal losses;Chevron in focus
[.N]
* For closing rates of Indian ADRs
INADR
(Editing by Ranjit Gangadharan)