(Updates to close)
By Hiral Vora
MUMBAI, Feb 7 (Reuters) - Indian shares fell 3.38 percent to their lowest close in two weeks on Thursday, spooked by poor sentiment in European equities and jitters that a correction at home may deepen, with Reliance Industries Ltd leading the drop.
The market took news that India's economy is likely to expand at 8.7 percent this fiscal year in its stride, with the slower pace from 2006/07 widely expected. See: [ID:nDEL211416].
But a warning from Cisco (CSCO.O) triggered fresh concern in European markets that a U.S. economic slowdown may erode corporate profitibility.
India's benchmark BSE 30-share index .BSESN dropped 612.6 points to 17,526.93, its weakest close since Jan. 24, with 29 components in the red.
"Looks like there was heavy selling from the foreign funds today," said Neeraj Dewan, director at Quantum Securities.
"The confidence is just not there. There are not many buyers in the market as people are fearing that the market will fall further," he said.
The index, which dropped 2.8 percent on Wednesday, is now more than 17 percent below a record 21,206.77 hit on Jan. 10 and foreign funds, who bought shares worth more than $17 billion in 2007, have been net sellers of more than $2.5 billion so far this year.
Shares in some Indian outsourcers dropped after peers in the United States fell following a weak earnings forecast from network equipment maker Cisco Systems Inc (CSCO.O) and Electronic Data Systems Corp EDS.N.
The software services exporters earn more than half their revenue from the United States and bellwether stock and second largest exporter Infosys Technologies Ltd (INFY.BO) ended down nearly 2 percent at 1,480.90 rupees.
Smaller firm Satyam Computer Services Ltd SATY.BO fell 4.4 percent to 390.85 rupees.
Brokers say cash is drying up as investors sit on their hands, while initial public offerings are also sucking up available funds. The sliding market has forced property developer Emaar MGF Land Ltd to extend its IPO until Feb. 11 and lower its indicated price for a second time. See: [ID:nBOM273289]
In the broader market 2,004 losers outweighed 800 gainers on a total volume of more than 436 million shares.
The 50-share NSE index .NSEI fell 3.56 percent to 5,133.25 points.
Elsewhere in the region, Karachi's 100-Share index .KSE eased 0.17 percent to 13,993.92, but Colombo's All-Share index .CSE rose 0.72 percent to 2,454.89.
STOCKS THAT MOVED
* Top listed firm Reliance Industries (RELI.BO) fell nearly 5 percent to 2,425 rupees, its lowest close in more than two weeks on heavy selling in the futures market and by foreign funds, traders said.
* Indian banks have no exposure to the U.S. subprime mortgage crisis but shares in No. 2 lender ICICI Bank Ltd (ICBK.BO) fell 4.1 percent to 1,105.25 rupees, while bigger rival State Bank of India (SBI.BO) lost 1.3 percent to 2,155.20 rupees.
* The banking sector index .BSEBANK fell 2.9 percent.
* Simplex Castings Ltd (SIMC.BO) ended 5.1 percent up at 77.40 rupees after the metal castings maker received an order worth 140 million rupees ($3.5 million) from the rail ministry.
* Shivalik Bimetal Controls (SHVB.BO) rose 5 percent to 29.95 rupees after tying up with top steel maker ArcelorMittal ISPA.AS and a German firm to set up a plant in India. See [ID:nBOM134735].
MAIN TOP 3 BY VOLUME
* Reliance Natural Resources Ltd RENR.BO on 35.3 million shares.
* Ispat Industries Ltd ISPT.BO on 29 million shares.
* Nagarjuna Fertilisers & Chemicals (NGFR.BO) on 19.8 million shares.
FACTORS TO WATCH * Rupee flat lacking cues from equities, Asian markets [INR/] * Indian bonds steady in thin trade, auction eyed [IN/] * FOREX-Euro softer, focuses on ECB and Trichet [FRX/] * Oil recovers above $87, output shutdowns support [O/R] * Japan stocks recoup losses but U.S. fears weigh [MARKETS/AS] * US STOCKS-Wall St seen mixed, techs in focus [.N] * For closing rates of Indian ADRs INADR
$1=39.5 rupees (Editing by Charlotte Cooper)