Mkts crash, Sensex closes 570 pts down

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Stocks gain; banks up on rate cut hopeIT stocks in green amid weak rupeeMarkets flat, Sensex ends up 66 pointsSensex up over 300 pts on rate cut hopes

Mumbai, July 3:: Indian shares fell 4.2 per cent on Thursday, taking their losses to 15 per cent in two weeks, as record oil prices above $145 a barrel intensified inflation expectations and possibly tighter monetary policy.

No. 2 mobile operator Reliance Communications tumbled 6.9 per cent to 389.50 rupees, its lowest close in nearly 16 months, on concerns a family feud could scupper a multi-billion dollar deal with South Africa's MTN.

Shares in the firm have fallen a third since late May when it began talks with MTN to create a global top-10 telecoms firm.

Financial stocks dropped as rising interest rates were likely to slow down demand for loans and increase defaults by customers, while falling bond prices would erode the value of bank investment and result in higher provisioning.

"There is a fear in the market the repo rate may be hiked further," said Gopal Agarwal, head of equity at the Indian fund unit of Mira Asset, referring to the central bank's key short-term lending rate.

Last month, the central bank had raised its key repo rate twice by a total of 75 basis points to rein in galloping inflation.

Traders said political concerns also kept investors edgy, with the government wooing a regional party for support if the communists withdrew their parliamentary votes in protest against a civilian nuclear deal with the United States.

The 30-share BSE index ended down 4.18 per cent, or 570.51 points, at 13,094.11, after falling as much as 5.3 per cent during trade, with 28 components in the red.

The benchmark is down 35.5 per cent this year.

In the broader market, 749 losers led 1,872 gainers on volume of 359 million shares.

Banks led the fall with the No. 2 lender ICICI Bank shedding 7.9 per cent to 573.85 rupees, its lowest close in nearly two years.

Morgan Stanley said in a research note that bond and equity losses would squeeze profits of banks and forecast ICICI's earnings per share would fall by a fifth in the June quarter.

The BSE Bank index fell 4.6 per cent. Leading mortgage lender Housing Development Finance Corp dropped 5 per cent to 1,935.50 rupees, its lowest close since Aug. 23, 2007.

Oil, India's biggest import, hit records for the fifth time in six sessions, as the dollar fell on a gloomy US jobs data, while a higher that expected fall in US crude stocks raised supply concerns.

India's economic growth in 2008/09 is expected at 7.6 per cent, lower than previously expected, pulled down by high inflation, the central bank's tight policy and record oil prices, a quarterly Reuters poll showed.

Annual inflation, running at a 13-year high of 11.4 per cent in mid-June, could quicken if a nationwide truckers strike against higher fuel prices and taxes that began on Wednesday continued beyond five days, traders said.

Steel stocks fell after producers pledged to cut prices of steel pipes and tubes by 10 per cent after a meeting with the steel ministry.

Tata Steel, the world's sixth-largest steel maker, fell 11.3 per cent to 657.45 rupees, its lowest close in three months. State-run Steel Authority of India fell 9.8 per cent to 128 rupees.

Reliance Industries Ltd, which has the heaviest weight in the BSE index, fell 3.4 per cent to 2,071.10 rupees on foreign fund selling after a few brokerages cut its price target.

Traders said investors were also watching political developments after the Times of India reported on Thursday that the regional Samajwadi Party may demand the removal of the finance minister, oil minister and central bank governor for its support to the government. The 50-share NSE index, or Nifty, fell 4.1 per cent to 3,925.75.