Indian shares rise 0.7 pct on short covering

* Investors square positions ahead of derivatives expiry

* Market undertone shaky as lifeline rains delayed

* L&T gains on hopes for higher infrastructure spending
(Updates to close)

By Narayanan Somasundaram

MUMBAI, June 24 (Reuters) - Indian shares erased an early
fall and climbed 0.7 percent on Wednesday as investors covered
their short positions ahead of the monthly derivatives expiry,
but the market undertone was weak due to a delay in monsoon.

Larsen & Toubro (LART.BO), which lost nearly a tenth of its
value in the last two weeks, led the gains on speculation the
engineering and construction firm would benefit from expected
higher spending on infrastructure.

The government's annual budget on July 6 is expected to
spell out bold plans to improve overburdened roads, ports and
other infrastructure to help boost growth. [ID:nBOM544532]

However, annual monsoon rains, which are a lifeline for the
country's trillion dollar economy, have weakened and are
expected to be below normal, the government said on Wednesday.
[ID:nDEL000118]

"The environment is not too positive, with the delayed
monsoons and fiscal deficit. Monsoon could play havoc in rural
demand story of two-wheeler makers and FMCG firms," said
D.D.Sharma, vice-president at Anand Rathi Securities, referring
to fast moving consumer goods.

The farm sector, which contributes about a sixth of
economic output, is heavily dependent on the June-September
rains for irrigation. Lower farm incomes usually squeeze demand
for industrial goods.

The 30-share BSE index .BSESN seesawed to end 0.69
percent, or 98.72 points, higher at 14,422.73 points, with 24
stocks rising. It opened up and quickly fell as much as 0.8
percent before rebounding 1.1 percent at one stage.

"Rollovers are not happening, investors are just closing
positions with the uncertainty over the budget," said Rajesh
Jain, chief executive at Pranav Securities.

Forward contracts expire on the last Thursday of every
month.

The benchmark has fallen 6.8 percent over the past two
weeks on profit-taking after a 14-week rally that saw it jump
83 percent.

Foreign funds have been net sellers over the past week,
cutting net inflows to about $7.5 billion from around $8
billion since mid-March.

Export-focused outsourcers rose on hopes the slowing
inflows would push the rupee lower and boost margins of
software exporters who are seeing a turnaround in client
confidence.

Top outsourcer Tata Consultancy Services (TCS.BO) rose 4.3
percent to 382.05 rupees, its sharpest daily percentage gain in
two weeks. Bellwether Infosys Technologies climbed 0.75 percent
to 1,759.15 rupees.

Larsen & Toubro gained 1.5 percent to 1,508.85 rupees and
state-run Bharat Heavy Electricals Ltd (BHEL.BO) ended 2.7
percent higher at 2,193.15 rupees..

State-run Oil and Natural Gas Corp (ONGC.BO) rose 2.4
percent to 1,051 rupees ahead of its annual results.

Private-sector lenders ICICI Bank (ICBK.BO) and HDFC Bank
(HDBK.BO) were pulled down by fresh worries about a nascent
economic recovery.

ICICI Bank fell 1.2 percent to 689.35 rupees, while HDFC
Bank slid 1.97 percent to 1,456.35 rupees.

Reliance Industries (RELI.BO), which has the most weight in
the main index, eased 0.8 percent to 2,000.10 rupees.

In the broader market gainers led losers in the ratio of
more than 2 to 1 on more than average volumes of 477.2 million

shares.

The 50-share NSE index rose 1.1 percent to 4,292.95
points.

Asian shares rose, with Japan's Nikkei .N225 up 0.4
percent, while MSCI's measure of other Asian markets .MSCIAPJ
climbed 2 percent.

European stocks recovered from five-week lows ahead of a
U.S. Fed decision at 1815 GMT that is seen to dampen
expectations for higher interest rates.

MAIN TOP 3 BY VOLUME

* Suzlon Energy (SUZL.BO) on 23.8 million shares

* Reliance Natural Resources (RENR.BO) on 23 million shares

* Unitech (UNTE.BO) on 18.9 million shares

STOCKS THAT MOVED

* Punj Lloyd (PUJL.BO) rose 6.2 percent to 209.10 rupees
ahead of a board meet later in the day to consider raising
funds.

* Educomp Solutions (EDSO.BO) rallied 11.2 percent to
3,427.35 rupees after it formed an equal joint venture with
British publishing group Pearson (PSON.L) to offer vocational
and skills training in India.

* Flawless Diamond India Ltd (FLDM.BO) gained 4.9 percent
to 35.10 rupees after the company said its board would meet on
July 1 to consider a stock split.

* Bharati Shipyard (BHAR.BO) advanced 2.9 percent to 167.20
rupees after it said it would top a counter-bid by rival ABG
Shipyard Ltd (ABGS.BO) for a controlling stake in Great
Offshore (GOFS.BO). [ID:nBOM428954]

FACTORS TO WATCH
* For technical analysis double click on www.reutersindia.net
* Indian rupee up tracking a rise in local equities
[INR/]
* India bond yields down on overseas cues, oil
[IN/]
* Euro, short-dated euro govt bond yields fall
[FRX/]
* Oil dips under $69 on higher gasoline stocks [O/R]
* Dollar down before Fed, stocks edge up [MKTS/GLOB]
* Futures point to Wall Street shares edging up

[.N] * For closing rates of Indian ADRs

INADR (Editing by Ranjit Gangadharan)