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BSE Sensex drops 0.5 pct; financials fall

MUMBAI (Reuters) - The BSE Sensex fell on Friday with financials leading the losses in tandem with world markets on expectations of tighter financial regulation ahead of the weekend G20 meeting and uncertainty about the global economic recovery.

People walk past the Bombay Stock Exchange (BSE) building displaying India's benchmark share index on its facade, in Mumbai September 30, 2009. REUTERS/Punit Paranjpe/Files

By 11:21 a.m. (0551 GMT), the 30-share BSE Index was trading down 0.5 percent at 17,641.47 points, with two-thirds of its components declining.

“The state of affairs overseas are pretty confusing. We do not know if the worst is over for Europe,” Manish Sonthalia, who manages $200 million of assets at brokerage Motilal Oswal.

Foreign funds have invested around $1.7 billion so far in June and helped the BSE index rise 4 percent in the period, but traders were wary about the outlook because of uncertainties in the euro zone and elsewhere.

In May, foreigners had pulled out $2 billion in the wake of fiscal troubles in Europe.

Differences among G20 leaders ahead of a summit in Toronto over how to secure the economic recovery caused investor concern, particularly with leading indicators reflecting a slowdown ahead.

Leading lender State Bank of IndiaSBI.BO dropped 0.9 percent, while rivals ICICI BankICBK.BO and HDFC BankHDBK.BO were down 1.7 percent each.

The financials were also weighed down after data on Thursday showed food inflation in Asia’s third-largest economy accelerated in mid-June, maintaining pressure on the central bank to tighten monetary policy at a faster pace.

Energy giant Reliance Industries, which has the highest weight on the Sensex, was down 0.4 percent at 1,046.90 rupees.

IT bellwether Infosys Technologies shed 1.1 percent after rising 1.8 percent over two previous sessions.

Metal makers were trading lower as London copper futures fell.

Non-ferrous metals producer Sterlite Industries and aluminium maker Hindalco dropped 2.2 percent and 0.9 percent respectively.

Tata Steel, the world’s eighth-largest steelmaker by output, declined 0.9 percent.

“On the domestic front, the situation is not worrying. Monsoon is a bit below normal but hopefully things should improve,” Sonthalia said.

Monsoon rains, vital to India’s trillion-dollar economy, were 21 percent below normal in the week to June 23, reflecting slow progress since the season began in June.

Still, market participants are upbeat on the outlook for the rest of the year because of a pick-up in economic growth.

The BSE index should gain 7 percent to 19,000 points by the end of 2010 from Thursday’s close, the median estimate in a Reuters poll of 20 market participants showed, while 17 forecast it rising over 18 percent by the end of June 2011 to 21,000.

In the broader market, losers almost equalled the number of gainers on volume of 154 million shares.

The 50-share NSE index down 0.6 percent at 5,291.10.

STOCKS ON THE MOVE

* Bharti Airtel rose 0.6 percent to 264.75 rupees after India’s top mobile operator said it would spend $150 million to improve its network in Zambia, as it challenges MTN Group for dominance in fast-growing Africa.

* Suzlon Energy was up 0.6 percent at 58.05 rupees after the wind turbine maker said it had received a 48.3-megawatt order from a Chinese wind power producer.

MAIN TOP 3 BY VOLUME

* Reliance Natural Resources on 5 million shares

* GTL Infrastructure on 4.6 million shares

* Mahindra Satyam on 2.2 million shares

(Reporting by Ami Shah; Editing by Editing by Ranjit Gangadharan)

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