CORRECTED - Indian shares rise 1.7 pct; budget awaited

(Corrects share price rise of Container Corp to 4 percent in
section "Stocks That Moved")

* Short-covering helps after early slide

* Financials rise on hopes for reforms in Monday budget

* Rail freight, passenger fares kept unchanged
(Updates to close)

By Prashant Mehra

MUMBAI, July 3 (Reuters) - Indian shares shrugged off an
early fall and rose 1.7 percent on Friday, as investors covered
their short positions ahead of an updated budget on Monday and
helped the market to post its second consecutive weekly gain.

Rail freight and passenger fares were kept unchanged in a
separate budget for the railways presented to parliament on
Friday, and the main budget is widely expected to detail plans
to further open up the economy and kick off asset sales.

Financial stocks, led by mortgage lender Housing Development
Finance Corp (HDFC.BO), rose on hopes for incentives, while
infrastructure-related stocks gained in anticipation of higher
government spending.

Top engineer Larsen & Toubro (LART.BO), state-run utility
NTPC (NTPC.BO) and Bharat Heavy Electricals (BHEL.BO), all rose
between 1.5 to 3 percent.

The 30-share BSE index .BSESN rose 1.74 percent, or 254.56
points, to 14,913.05 points, with 23 components gaining. The
index had slipped as much as 1.1 percent at one point, in
volatile trade.

It gained 1 percent on the week, its 16th weekly rise in 17
and has risen more than half this year on hopes for an economic
recovery and expectations for a investor-friendly budget.

The market may have run too fast and could be in for
disappointment if the budget falls short of expectations,
analysts said.

There are doubts on how much the cash-strapped government
can do to provide an economic stimulus to lift growth, traders
said.

"I think the expectations are too high, and a knee-jerk
reaction on the downside is possible, as it may not satisfy the
market," said R.K. Gupta, managing director at Taurus Asset
Management.

HDFC rose 7.7 percent to 2,586.25 rupees, while State Bank
of India (SBI.BO) gained 2.9 percent to 1,810.65 rupees and
ICICI Bank (ICBK.BO) added 3.1 percent to 754.05 rupees.

Export-focused technology stocks rose, but gains were muted
after U.S. government data showed the U.S. economy shed more
jobs than expected in June, dampening the outlook for an
economic turnaround there.

Top outsourcer Tata Consultancy Services (TCS.BO) ended up
0.3 percent at 391.40 rupees, Infosys (INFY.BO), which reports
quarterly results next week, rose 0.3 percent to 1,800.90
rupees, and Wipro (WIPR.BO) gained 1.1 percent to 385.55 rupees.

Motorcycle maker Hero Honda (HROH.BO), however, fell 1.1
percent to 1,369.60 rupees on worries over growth outlook, a day
after auto fuel prices were raised by as much as 10 percent.

In the broader market, advances narrowly beat declines in
the ratio of 1.06:1 on above average volume of 355 million
shares.

The 50-share NSE Index rose 1.7 percent to 4,424.25
points.

TOP 3 STOCKS BY VOLUME

* Reliance Natural (RENR.BO) on 22.6 million shares

* Suzlon Energy (SUZL.BO) on 14.9 million shares

* Ispat Industries (ISPT.BO) on 13.4 million shares

STOCKS THAT MOVED

* Balaji Telefilms Ltd (BLTE.BO) fell 2.2 percent to 53.55
rupees after the television content producer said it had
received a notice from the government demanding service tax dues
of 635 million rupees.

* Rail operators Container Corp of India (CCRI.BO) rose 4
percent and Arshiya International (ARTC.BO) rose 5 percent after
the railway minister said private operations of freight
terminals would be encouraged.

FACTORS TO WATCH
* For technical analysis, double click on www.reutersindia.net
* India rupee strengthens as stocks recover [INR/]
* Indian bond yields down on lower borrowing hopes [IN/]
* FOREX-Euro recovers vs dlr; trade thin on US holiday [FRX/]
* Oil slips below $67 after bleak U.S. jobs data [O/R]
* Stocks dip as data puts recovery in doubt [MKTS/GLOB]
* Bleak payrolls report mauls Wall St; volume thin [.N]
* For closing rates of Indian ADRs INADR
(Editing by Ranjit Gangadharan)