UPDATE 2-Indian shares rebound on stimulus, hopes of U.S., China trade talks

* NSE index up 2.08%, BSE index 2.2% higher

* Nifty auto index 0.2% higher (Updates with share movement, adds analyst quote)

Aug 26 (Reuters) - Indian shares on Monday looked set for their best day since Prime Minister Narendra Modi’s re-election in May, as a slew of government measures to revive economic growth and hopes of progress in Sino-U.S. trade talks helped boost sentiment.

After volatile trading through most of the session, the broader NSE index rose 2.08% to 11,057.25 as of 0900 GMT, while the benchmark BSE index climbed 2.2% to 37,512.42.

China’s yuan recovered after slumping to a fresh 11-year low against the dollar on Monday, following comments by U.S. President Donald Trump on the sidelines of the G-7 summit revived hopes for a de-escalation in the on-going trade war.

“There was initial euphoria over Friday’s announcement but there were fears of trade war concerns that led to investors exiting positions,” said Siddhartha Khemka, head of retail research at Motilal Oswal Securities.

“Trump’s comments have seemed to have calmed nerves and domestic sentiments are positive because of the government’s announcement and things are going to start looking up.”

On Friday, India’s finance minister, Nirmala Sitharaman, outlined a raft of measures in an attempt to lift consumer sentiment and promised more actions soon to revive slowing economic growth.

India is rolling back recent tax hikes on foreign and domestic equity investors and is accelerating a capital infusion of $10 billion into state-run banks, Sitharaman said on Friday.

India, Asia’s third-largest economy, is facing a slow growth that has dampened demand for everything from cars to cookies, and a poorly received budget proposal on higher taxes for foreign portfolio investors contributed to a recent selloff in the markets.

The Nifty PSU bank index that tracks state-owned lenders rose as much as 6.47%, with a 3.8% rise in State Bank of India.

Shares of Yes Bank Ltd and Indiabulls Housing Finance Ltd were among the top gainers on the NSE index, rising over 3% each.

The Nifty Auto index, which swung between losses and gains after rising as much as 3.07%, was trading 0.2% higher by 0915 GMT

The Indian rupee which fell to 72.08 against the dollar, its lowest since Dec. 12, strengthened slightly to 71.91 by 0915 GMT.

Index heavyweights Housing Development Finance Corporation and HDFC Bank Ltd bolstered gains on the NSE index. Both rose more than 4% in afternoon trade.

Miners Vedanta Ltd and Tata Steel Ltd were among top losers on the NSE index, down 3.5% and 3.2% respectively. (Reporting by Chandini Monnappa in Bengaluru; editing by Gopakumar Warrier)