BSE Sensex fall in low volume trade, RBI report hits financials

MUMBAI (Reuters) - Indian stocks erased early gains to weaken on Thursday in low volume trade, dragged down by financials and IT stocks after a central bank report raised concerns over corporate vulnerability and bad loans.

A report released by the Reserve Bank of India warned the impact of companies' weak balance sheets on the financial system needed closer monitoring.

Trading was marred by low volumes in a holiday-shortened week, and subdued trade was likely until Dec-end, analysts said.

"Financials are down because of concerns expressed by the RBI," said G Chokkalingam, the founder of Equinomics, a Mumbai-based research and fund advisory firm.

"Users of oil, resources will continue to lead in the midcap space in 2016, until the second quarter."

The Nifty was 0.14 percent lower at 12:21 p.m. on Thursday and the Sensex was down 0.09 percent.

Earlier in the session, both indexes hit their highest level since Dec. 3, tracking gains in Asian markets, which climbed to 2-1/2-week highs.

ICICI Bank was trading down 0.73 percent, while State Bank of India was lower 0.54 percent.

Housing Development Finance Corp was down 0.62 percent, while among IT stocks, Infosys fell 0.72 percent.

Indian markets will be closed on Friday for the Christmas Day holiday.

(Reporting by Neha Dasgupta in Mumbai; Editing by Subhranshu Sahu)