Indian shares fall 0.5 pct as monsoon worries grow

* Automakers, consumer firms hit as rural demand may slow

* Short-covering on derivatives expiry provided support
early

* Reliance drops; ICICI, HDFC gain

* ONGC falls after drop in quarterly profit
(Updates to close)

By Pratish Narayanan

MUMBAI, June 25 (Reuters) - Indian shares shed 0.5 percent
on Thursday, led by automakers and consumer-goods firms after a
below-normal monsoon forecast triggered concerns demand in the
crucial rural heartland would take a hit.

Farms in India depend on the June-September annual rains
for irrigation and patchy showers could seriously squeeze rural
incomes, reduce demand for everything from motorbikes to soaps
and worsen a slowing economy.

The market had risen as much as 1.1 percent in morning
trade on short-covering on the last day of monthly derivatives
contracts, but traders said there was not much fresh buying
after the expiry.

"There are a lot of factors affecting the market. Global
stocks have been weak in the past few weeks, and on top of that
we have our own problems such as the monsoon," Apurva Shah,
head of research at brokerage Prabhudas Lilladher, said.

Profitability at automakers and consumer-goods makers, who
are exposed to the rural sector, could be hit as poor rains
lower farm output, raise food prices and dent rural demand.

The government said on Wednesday India's monsoon rains, a
lifeline to its trillion-dollar economy, are expected to be
below normal for the first time in four years, a blow to a
slowing economy. [ID:nBOM468564]

Top utility vehicle maker Mahindra & Mahindra (MAHM.BO)
fell 2.9 percent to 702.65 rupees, while leading vehicle maker
Tata Motors dropped 5.4 percent to 337.60 rupees. No. 1
carmaker Maruti Suzuki (MRTI.BO) slipped 3.1 percent to
1,026.90 rupees.

Consumer-goods giant Hindustan Unilever (HLL.BO) shed 1.3
percent to 259.25 rupees, while diversified cigarette maker ITC
Ltd (ITC.BO) dropped 2.3 percent to 194.10 rupees.

Oil and Natural Gas Corp (ONGC.BO) fell 2.5 percent to
1,025.20 rupees a day after the state-run explorer reported a
surprise 16 percent drop in March-quarter profit.
[ID:nBOM492364]

The 30-share BSE index .BSESN ended down 0.53 percent, or
77.11 points, at 14,345.62, with 20 stocks declining, after
rising to as much as 14,578.46.

The benchmark had fallen almost 7 percent over the past two
weeks on profit-taking after a 14-week rally that saw it jump
83 percent.

Expectations are running high the government's annual
budget on July 6 will relax foreign investment rules, hike
spending on infrastructure and kick-off stake sales in
state-run firms to reduce a rising fiscal deficit and boost
slowing economic growth.

But investors are wary.

"There is underlying weakness in the market. The monsoon is
a definite concern, and it is out of our control," Ambareesh
Baliga, vice president at Karvy Stock Broking, said.

"Investors are also toning down their expectations from the
upcoming budget."

The main stock index could decline by 3 to 6 percent from
current levels by the end of 2009 as expensive valuations and
higher commodity costs temper investor optimism, a senior
strategist at Citigroup said on Wednesday. [ID:nBOM466887]

Energy giant Reliance Industries (RELI.BO), which has the
most weight in the main index, slid 2 percent to 1,959.50
rupees.

But private-sector lender ICICI Bank (ICBK.BO) climbed 1.4
percent to 698.70 rupees, while top mortgage lender Housing
Development Finance Corp (HDFC.BO) advanced 3 percent to
2,378.10 rupees.

In the broader section, gainers led losers 1,426 to 1,220
on relatively above-average volume of 426.4 million shares.

The 50-share NSE index fell 1.2 percent to
4,241.85. More than half its components saw large block
deals as funds aligned with the index rejigged their holding
ahead of a switch to a free-float market capitalisation
methodology based on the public shareholding of the firms to
calculate the weight of index stocks. [ID:nBOM216079]

MAIN TOP 3 BY VOLUME

* Unitech (UNTE.BO) on 27.1 million shares

* Suzlon Energy (SUZL.BO) on 19.4 million shares

* Jaiprakash Hydro Power (JAPR.BO) on 15.3 million shares

STOCKS THAT MOVED

* Jaiprakash Hydro (JAPR.BO) rose 8.3 percent to 93.75
rupees on a Business Standard newspaper report that unlisted
Jaiprakash Power Venture Ltd, a unit of Jaiprakash Associates
(JAIA.BO), is set to merge with the hydro-power company.
[ID:nBOM395099]

* UltraTech Cement (ULTC.BO) climbed 3.3 percent to 710.75
rupees after the Economic Times reported its parent Grasim
Industries (GRAS.BO) plans to absorb the firm to consolidate
the group's cement business under one arm. [ID:nBOM508613]

FACTORS TO WATCH
* For technical analysis double click on www.reutersindia.net
* Indian rupee up as local shares rise on Asian cues
[INR/]
* Indian bonds yields extend rise after WPI data
[IN/]
* Dollar steadies after Fed, euro little changed
[FRX/]
* Oil rises to $69 on Nigeria attack [O/R]
* World stocks slip after Fed cautions [MKTS/GLOB]
* Wall St futures signal higher open; eyes on banks
[.N] * For closing rates of Indian ADRs

INADR (Editing by Ranjit Gangadharan)