Indian shares rise 2.9 pct, seen up next week

* Gain 1.7 pct on week after falling 4.7 pct last week

* Long positions built after 7.2 pct fall over past 2 weeks

* Strong Asian, European markets lift sentiment

* Sun Pharma plunges after authorities seize U.S. unit
drugs

* Reforms budget expectations to underpin mkt next week
(Updates to close)

By Pratish Narayanan

MUMBAI, June 26 (Reuters) - Indian shares rose 2.9 percent
on Friday to its best close almost two weeks as investors took
cues from Asian and European peers and scooped up bargains
after the market shed more than 7 percent over the past two
weeks.

The rebound took gains in the main index to 1.7 percent for
the week, after falling 4.7 percent last week when it snapped a
run of 14 weekly gains -- its best in 4 years -- during which
it leapt 83 percent.

Energy giant Reliance Industries (RELI.BO), private-sector
lender ICICI Bank (ICBK.BO) and engineering and construction
firm Larsen & Toubro (LART.BO) led the gains.

"I think the undercurrent next week is going to be very
positive," said Jayesh Shroff, who helps manages about $1
billion in equity at SBI Mutual Fund.

Expectations the government's budget on July 6 will unveil
pro-market reforms such as privatisations and relaxation of
foreign investment rules will underpin the market, he said.

"Even if there are no specific numbers given in the budget,
there is confidence it will be reformist and will lay out the
government's priorities," Shroff said.

However, Sun Pharmaceutical Industries (SUN.BO) tumbled as
much as 17.6 percent after U.S. officials said authorities
seized all medicines produced by its Caraco Pharmaceutical
Laboratories (CPD.A) unit, following repeated violations of
manufacturing standards. [ID:nBOM325817]

The 30-share BSE index .BSESN ended up 2.92 percent, or
419.02 points, at 14,764.64, with 27 stocks advancing, after
rising as much as 3 percent in late in the afternoon.

"Everyone is eyeing the budget, and some may just take a
shot at the budget expectations being met. So we could see a
rally of about 700 points over the next week," said Hitesh
Agrawal, head of research at Angel Stock Broking.

But trading could be choppy on worries a below-normal
monsoon forecast will hurt demand in the crucial rural
heartland and hit corporate profitability. There are also
concerns shares are pricey after the market's rally since
mid-March.

Over the past two weeks, net foreign fund inflows since
mid-March have dropped to about $7.5 billion from around $8
billion.

Still, the Indian fund unit of HSBC (HSBA.L) is overweight
on industrials and is raising exposure to metals because of
signs of an economic revival and hopes for higher government
spending to boost growth, a fund manager said.

"We are overall positive on the infrastructure sector given
that we expect the new government to focus on economic
reforms," Jitendra Sriram, who took over as head of equity in
February at HSBC Asset Management (India), said.
[ID:nBOM418220]

Larsen climbed 5.5 percent to 1,611.20 rupees, taking gains
for the week to 7.7 percent.

ICICI Bank rose 8 percent to 754.35 rupees, ending the week
up 5.7 percent.

Reliance, which has the most weight in the main index,
advanced 3.5 percent to 2,028.65 rupees.

Sun Pharma, the country's largest drugmaker by market value
at about $5 billion, ended down 12.2 percent at 1,140.45
rupees, after sliding to as much as 1,070 rupees -- its lowest
since April 8.

In the broader market, gainers led losers by almost 2 to 1
on below-average volume of 383.2 million shares.

The 50-share NSE index rose 3.15 percent to
4,375.50.

Asian shares climbed, with Japan's Nikkei .N225 rising
0.8 percent, while MSCI's measure of other Asian markets
.MSCIAPJ gained 1.8 percent.

At 1035 GMT, the FTSEurofirst 300 .FTEU3 index of top
European shares was up 0.3 percent.

MAIN TOP 3 BY VOLUME

* IFCI (IFCI.BO) on 25.1 million shares

* Ispat Industries (ISPT.BO) on 18.4 million shares

* Suzlon Energy (SUZL.BO) on 16.9 million shares

STOCKS THAT MOVED

* Non-ferrous metals firm Sterlite Industries (STRL.BO)
advanced 6.1 percent to 612.05 rupees after copper prices in
Shanghai rose for a fourth straight session on Friday.
[ID:nMAN498771]

* Tata Steel (TISC.BO) fell 2.5 percent to 387.90 rupees
after the world's sixth-largest steelmaker reported a 60
percent drop in 2008/09 consolidated net profit, missing market
forecasts. [ID:nBOM474435]

FACTORS TO WATCH
* For technical analysis double click on www.reutersindia.net
* Indian rupee strengthens tracking stronger shares
[INR/]
* Indian bond yields off lows after auction result
[IN/]
* Dollar tumbles, risk appetite revives
[FRX/]
* Oil rises over $71 after Nigerian attack reports [O/R]
* Commodities, stocks rise; dollar eases [MKTS/GLOB]
* U.S. stock index futures signal dip; Boeing in focus
[.N] * For closing rates of Indian ADRs

INADR (Editing by Ranjit Gangadharan)