After rising nearly 64 points, the BSE barometer pared gains amid profit-booking in realty, oil&gas and auto stocks.
Hectic buying, however, was seen in mid-cap and small-cap shares with their BSE indices gaining over 1.3 per cent each, outpacing blue-chip Sensex's mere 0.04 per cent rise.
Investors adopted a cautious stance after two days of hefty gains and preferred to book some profits, brokers said.
The Sensex resumed higher at 25,540.92 ahead of TCS and Bajaj Auto quarterly earnings. It advanced to 25,613.03 but was later trapped in a narrow range, before closing 11.44 points, or 0.04 per, cent higher at 25,561.16. This is its strongest level since 25,582.11 on July 8.
In the previous two sessions, the Sensex gained nearly 543 points as positive economic data and the RBI's easing of financing norms for infrastructure development boosted buying.
The Bajaj Auto scrip slipped over 2 per cent after the firm reported marginal year-on-year increase in June quarter net profit. TCS shares also ended 0.8 per cent weak ahead of earnings later in the afternoon.
Among 17 gainers in 30-share Sensex pack, Hindalco surged 3.91 per cent, followed by Tata Power (3.53 per cent), Tata Steel (2.99 per cent) and Coal India (2.86 per cent).
In the 13 Sensex laggards, shares M&M saw the biggest drop of 3.18 per cent, followed by Bajaj Auto, GAIL nd TCS.
Meanwhile, the NSE 50-issue Nifty ended with a marginal gain of 16.05 points, or 0.21 per cent, at 7,640.45, its second straight highest close since July 7. Intra-day, it moved in the range of 7,655.65 and 7,612.70.
Foreign Portfolio Investors (FPIs) had bought shares worth a net Rs 621.68 crore yesterday.
* NSE ends 0.21 pct higher; BSE index gains 0.04 pct
* Crompton Greaves jumps on demerger proposal
* Mahindra and Mahindra slumps after block deals
* Strides Arcolab gains; Mankekar raises stake to 4.7 pct
Indian shares gain for third day; TCS earnings awaited
(Reuters) - Indian shares rose for a third straight session on Thursday as lenders such as Kotak Mahindra Bank extended gains on upbeat sentiment as the central bank exempted long-term bonds for the infrastructure sector from reserve requirements.
Also, overseas investors bought Indian shares worth of 6.21 billion rupees ($103.5 million) on Wednesday, provisional exchange data showed.
Sentiment also got a boost as the monsoon rains were 15 percent below average in the past week, against 41 percent below average rainfall in the previous week, the weather office data showed.
Broader gains were although capped on caution ahead of key earnings such as from Tata Consultancy Services Ltd due later in the day and Reliance Industries Ltd on Saturday.
"Markets are likely to trade range-bound in the short term. Corporate earnings are the immediate trigger and there would be stock-specific movements. There could be some profit booking in select stocks, however, long-term trend is still bullish," said Suresh Parmar, head, institutional equities at KJMC Capital Markets.
The broader NSE index rose 0.21 percent, or 16.05 points, to end at 7,640.45, marking its second straight highest close since July 7, when it hit a record closing high.
The benchmark BSE index edged up 0.04 percent, or 11.44 points, to end at 25,561.16.
Kotak Mahindra Bank ended 3.4 percent higher, while State Bank of India Ltd rose 1 percent.
The Reserve Bank of India said on Tuesday it will allow long-term bonds raised by banks for infrastructure lending to be exempted from mandatory reserve requirements, in line with the government's announcement in the federal budget last week.
Kotak also gained after raising foreign institutional investment limit to 40 percent.
Defensive stocks also rose on caution ahead of key earnings. In healthcare shares, Lupin Ltd gained 2.6 percent while Cipla Ltd rose 1.1 percent.
Glenmark Pharmaceuticals Ltd also rose 1.4 percent after the company said it plans to set up a new manufacturing facility in the United States.
Strides Arcolab Ltd gained 1.9 percent after investor Shivanand Shankar Mankekar raised his stake in the company to 4.7 percent in the June quarter from 1.26 percent held earlier, according to exchange data.
Indian power equipment maker Crompton Greaves Ltd jumped 13.3 percent after proposing to demerge its consumer products business unit into a separate listed company, the company said in a statement on Thursday.
However, IDFC Ltd fell 2.4 percent on profit-taking, after the Indian infrastructure lender rallied 8.8 percent in the previous session. Also hurting shares was a statement by the Reserve Bank of India late Wednesday that the company had agreed to cut its overseas investment limit.
Mahindra and Mahindra Ltd fell 3.1 percent after 11.8 million shares changed hands in twenty-four block deals on the BSE exchange on Thursday morning, according to Thomson Reuters data.
Bajaj Auto Ltd fell 2.3 percent after India's second-largest motorcycle maker, reported a flat quarterly profit, lagging expectations, hurt by sluggish sales volumes in the domestic market.
Tata Consultancy Services also fell 0.8 percent ahead of its April-June results due later in the day. Reliance Industries shares ended 0.7 percent lower ahead of its quarterly results on Saturday.
FACTORS TO WATCH
* Yen in vogue as sanctions on Russia sour risk sentiment
* Brent holds above $107 on U.S. crude draw, China data
* New sanctions cause Russian shares to tumble