Indian shares rise 1.5pct as manufacturing picks up

* Domestic demand lifts manufacturing for 2nd month in May

* Positive China, Europe manufacturing data also help

* HDFC, Infosys, NTPC lead gains; profit-taking clips
banks
(Updates to close)

By Pratish Narayanan

MUMBAI, June 1 (Reuters) - Indian shares rose 1.5 percent
on Monday to their highest close in almost nine months, as
manufacturing activity in Asia's third-largest economy expanded
for a second month in May on the back of a revival in domestic
demand.

China's manufacturing sector also expanded moderately in
May, while a severe euro zone factory recession eased during
the month, boosting investor confidence across markets in Asia
and Europe. [ID:nPEK17043] [ID:nL1414929]

Top mortgage firm Housing Development Finance Corp
(HDFC.BO) and outsourcer Infosys Technologies (INFY.BO) led the
gains. NTPC Ltd (NTPC.BO) also rose after the leading power
producer said on Friday it aimed to invest 550 billion rupees
($12 billion) in the next three years to add 24,000 megawatts
of generation capacity.

However, profit takers targeted lenders such as ICICI Bank
(ICBK.BO) and HDFC Bank (HDBK.BO), after the banking sector
.BSEBANK more than doubled in value from early March.

The 30-share BSE index .BSESN climbed 1.47 percent, or
215.38 points, to 14,840.63, its highest close since Sept. 9
last year. It rose 1.9 percent in early trade before trimming
the gain.

The benchmark had soared 28.3 percent in May -- its
strongest monthly performance in 17 years, boosted by positive
economic data and hopes for market-friendly reforms after the
ruling coalition won a second term in office.

This has helped the index swell gains to 84.4 percent from
a 2009 low in early March. It is up 54 percent since the start
of the year after plunging by more than half in 2008.

"I would not say the Indian market is expensive at the
moment. It can go up even further based on good prospects for
growth as the government introduces its policies," said Dinesh
Thakkar, chairman and managing director at Angel Broking.

A survey showed manufacturing activity expanded for a
second straight month in May to its highest level in eight
months, reflecting a revival in domestic demand, but weak
exports are likely to remain a drag on the economy.
[ID:nBOM432689]

Hefty interest rate cuts by the central bank and government
stimulus packages have boosted optimism in recent months that a
rebound in domestic consumption will pull the economy out of
its slowdown faster than economists had expected.

The survey numbers came after data on Friday showed India's
economy expanded faster than expected in the March quarter,
boosted by strength in the farm and services sector. For a
related story, please see [ID:nDEL396731].

Macquarie Research said it had raised its growth forecast
for India to 7 percent for 2009/10 and to 7.5 percent in the
following year after the Friday data. [ID:nBOM170650]

The ruling coalition is widely expected to push reforms
such as asset sales in state-run firms, oil price deregulation
and relax foreign investment rules in the insurance and
pension sectors.

The market largely shrugged off news General Motors (GM.N)
will file for bankruptcy on Monday, forcing the 100-year-old
automaker once seen as a symbol of American economic might and
dynamism into a new and uncertain era of government ownership.
[ID:nN31495007]

Twenty-four of the main index's components rose, while in
the broader section, gainers led losers by more than 4 to 1 on
relatively heavy volume of 695.1 million shares.

Traders said foreign funds, which have pumped about $6
billion into shares in the past 2-½ months, will continue to
be the main drivers of the market.

"Foreign funds will continue to pour money into emerging
markets, especially India because I think the market deserves
to be re-rated after a stable government has come to power,"
Thakkar said.

HDFC rose 5.2 percent to 2,298.55 rupees, while No. 2
IT-services firm Infosys advanced 4.7 percent to 1,676.85
rupees.

NTPC climbed 6.2 percent to 228.75 rupees.

Cairn India (CAIL.BO) jumped 12.8 percent to 261 rupees
after Goldman Sachs raised its 12-month target price to 290
rupees from 240, saying the energy explorer was set to produce
oil from its Rajasthan fields within the next few weeks.
[ID:nBOM16692]

Private-sector lender ICICI Bank eased 2.4 percent to
723.20 rupees, while rival HDFC Bank fell 0.7 percent to 1,433
rupees.

Top telecoms firm Bharti Airtel (BRTI.BO) dropped 1.7
percent to 805.95 rupees on lingering concerns its proposed
deal to merge with South Africa's MTN (MTNJ.J) may prove
expensive for Bharti and dilute its earnings per share
initially.

MTN's (MTNJ.J) No. 2 shareholder, Lebanon's Mikati family,
said on Friday it supported merger talks with the Indian firm
and would vote in favour of a $23 billion cash and share swap.
[ID:nLT023744]

The 50-share NSE index ended up 1.8 percent at
4,529.90.

Asian markets rose on Monday, with Japan's Nikkei .N225
climbing 1.6 percent, while MSCI's measure of other Asian
markets .MSCIAPJ gained 3.25 percent.

The FTSEurofirst 300 .FTEU3 index of top European shares
was up 2 percent by 1036 GMT.