Sensex retreats after biggest 2-day rally since May

However, fall in the Indian markets was less compared to that in others

Indian stocks declined, with the benchmark gauge ending its biggest two-day rally in four months, as concern grew over the outlook for higher interest rates from the US Federal Reserve.

Hindalco Industries was the worst performer on the S&P BSE Sensex. State Bank of India paced declines for a gauge of lenders. Hindustan Unilever, the biggest household products-maker, slid for a third day this week. Tata Motors, owner of Jaguar Land Rover, was the best performer on the gauge after falling as much as four per cent intraday.

The Sensex retreated 0.4 percent to 25,622.17 at the close, paring losses of as much as 1.7 per cent in the last hour of trade. The gauge rose 3.3 per cent over Tuesday and Wednesday, its biggest two-day gain since May 11. MSCI Asia Pacific Index slid 1.5 per cent, as demand for riskier assets was quelled by the Fed rate increase concern, after US data showed job openings were at a record.

"We are fluctuating on a day-to-day basis as far as the probability of the rate hike is concerned," Mihir Vora, Mumbai-based chief investment officer at Max Life Insurance Co, which has $4.8 billion in assets, said in an interview with Bloomberg TV India. "The rate hike may happen because the US economy, in the Fed's view, is doing well and that isn't a bad thing especially for countries like India. The markets will remain volatile until then."

Job openings in the US surged to a record high in July, data released on Wednesday showed. Futures traders saw a 28 per cent chance that the Fed would increase rates in September, down from 32 per cent a week earlier, according to data compiled by Bloomberg. Chinese shares headed for their first drop in three days after the biggest tumble in producer prices in six years reignited concern about a deeper economic slowdown.

The rupee dropped 0.1 per cent. The currency weakened to 66.8650 per dollar on Monday, the weakest since September 2013.

Hindalco retreated 2.7 per cent, taking this year's loss to 51 per cent, while State Bank declined 1.8 per cent and Hindustan Unilever slid 1.6 per cent. Tata Motors rose 2.7 per cent to its highest since August 17. Foreigners sold Indian equities worth $95 million on Tuesday, keeping stocks on course for a seventh straight week of withdrawals. The outflow trimmed this year's purchases to $3.7 billion.

The Sensex trades at 14.4 times projected 12-month earnings, compared with a multiple of 10.6 for the MSCI Emerging Markets Index.

The India VIX index, the benchmark gauge of equity-option prices, jumped 1.8 per cent, rebounding from a three-day, 8 per cent decline. The CNX Nifty index slid 0.4 per cent to 7,788.1.