Indian shares fall 2.3 pct on weak Asia, Europe

* N.Korea tension hits global markets; weighs on sentiment

* Bharti falls for 2nd day after reviving MTN merger talks

* Reliance Industries, ICICI targeted by profit-takers

* Infosys rises as rupee weakens for second day
(Updates to close)

By Pratish Narayanan

MUMBAI, May 26 (Reuters) - Indian shares snapped a two-day
rise and fell 2.3 percent on Tuesday as tensions arising from
North Korea's nuclear test dented investor confidence across
Asia and Europe amid renewed jitters about the global economy.

Profit-takers targeted energy giant Reliance Industries
(RELI.BO) that had almost doubled its market value since early
March and private-sector lender ICICI bank (ICBK.BO), which had
nearly trebled in the period.

"India cannot disassociate itself from other markets," said
Subhajit Gupta, head of research at Reliance Equities.

"It did for a while after the election because the results
were a surprise, but now will have to trade in line with other
emerging markets."

He was referring to the Indian market's 14.1 percent jump
last week, its most in 17 years, after the ruling coalition was
re-elected with more seats in parliament raising hopes for
pro-market reforms.

The 30-share BSE index .BSESN ended down 2.33 percent, or
323.99 points, at 13,589.23, its worst close since the election
results were announced over a week ago. Twenty-six stocks
declined.

Trading was choppy as some short-covering ahead of the
expiry of monthly derivatives contracts sent the benchmark up
as much as 0.6 percent early.

The index had been moving in line with global markets in
the past two months, but outperformed last week after the
surprise election results taking gains to almost three-quarters
from early March.

Top telecoms firm Bharti Airtel (BRTI.BO) fell for the
second day after it said its plan to buy a 49 percent stake in
South Africa's MTN (MTNJ.J) would initially dilute its
earnings. [ID:nSP477731]

Traders said the main drivers of the market -- foreign
funds that have pumped in more than $5.5 billion since
mid-March -- were now selling some blue-chip stocks as they
believed the rally had made them expensive.

"Valuations are not cheap. There needs to be some tangible
signs of momentum in business for those valuations to be
justified," Gupta said.

"Right now, the expectations are a little ahead of
reality."

Gupta said the market could see a correction of about 10
percent over the next few weeks even though he believes its
longer-term prospects are intact.

Reliance Industries, which has the most weight in the main
index, dropped 2.25 percent to 2,144.05 rupees, while ICICI
Bank shed 5.25 percent to 666.60 rupees.

Bharti fell 5.05 percent to 770.40 rupees, extending
Monday's 5.4 percent drop.

Outsourcers Infosys Technologies (INFY.BO) and Wipro
(WIPR.BO), which get most of its revenue from overseas, bucked
the trend and rose as the rupee dropped for a second day on the
back of the dollar's gains overseas. [INR/]

Infosys, the country's No. 2 IT-services firm, advanced 2.3
percent to 1,543.20 rupees, while smaller rival Wipro rose 1.5
percent to 372.30 rupees.

In the broader section, losers led gainers 1,450 to 1,339
on heavy volume of 841.3 million shares.

The 50-share NSE index eased 2.85 percent to
4,116.70.

Most Asian and European markets fell on Tuesday, as a
report of fresh missile tests by North Korea added to market
tensions at a time when investors are questioning if they are
too optimistic about the global economic outlook.

Japan's Nikkei .N225 dropped 0.4 percent, while MSCI's
measure of other Asian markets fell 1.1 percent.

By 1020 GMT, the FTSEurofirst 300 .FTEU3 index of top
European shares was down 1.5 percent.

MAIN TOP 3 BY VOLUME

* Ispat Industries (ISPT.BO) on 33.6 million shares

* Satyam Computer (SATY.BO) on 27.8 million shares

* Unitech (UNTE.BO) on 22.5 million shares

STOCKS THAT MOVED

* Ranbaxy Laboratories (RANB.BO) fell 8.4 percent to 244.40
rupees after the Mint newspaper said the drugmaker could take a
hit of as much as $50 million due to a delay in supplying a key
ingredient to UK's AstraZeneca (AZN.L) used to make anti-ulcer
drug, Nexium. The company declined to comment on the report.

The stock had jumped 21 percent on Monday after its
Japanese parent Daiichi Sankyo (4568.T) replaced the Indian
firm's chairman and chief executive.

* Dishman Pharmaceuticals (DISH.BO) surged 20 percent to
174.40 rupees after it forecast revenue and net profit growth
of 15-20 percent for 2009/10 as it expected orders to come in
the later half of the year. [ID:nBOM491001]

* Spanco Telesystems (SPTS.BO) gained 9.65 percent to 59.10
rupees after 1.09 million shares, or 5.27 percent of its
equity, changed hands in a block deal on the BSE.

* Tantia Construction (TANC.BO) rose 3.2 percent to 53.20
rupees after it won a project worth 581.6 million rupees to
construct a bridge over river Damodar in east India.

FACTORS TO WATCH
* For technical analysis double click on www.reutersindia.net
* Indian rupee edges lower as stx fall and dlr gains
[INR/]
* Indian 10-yr yield off lows on higher borrowing fears
[IN/]
* Dollar recovers as German bank doubts knock euro
[FRX/]
* Oil falls below $60 ahead of OPEC meeting
[O/R]
* North Korea tension, economy worries hit stocks [MKTS/GLOB]
* U.S. stock futures signal dip; N.Korea in focus

[.N] * For closing rates of Indian ADRs

INADR (Editing by Ranjit Gangadharan)