Nifty heads towards highest close in nearly 2-1/2 weeks

MUMBAI (Reuters) - The BSE Sensex and Nifty rose more than 1 percent on Thursday, heading for their highest close in nearly 2-1/2 weeks, led by a surge in index heavyweight Reliance Industries for a fifth day, on optimism the company would begin 4G phone services in December.

Value-buying also continued as the Nifty remained more than 10 percent below its record high hit in March.

Gains also tracked higher Asian shares after the Federal Reserve signalled that interest rates would rise more slowly than markets had expected.

After a closely-watched two-day meeting, the Fed said the economy was likely strong enough to support an interest rate increase by the end of the year. But it lowered its forecasts for 2015 economic growth because of a weak start to the year and reduced its federal funds rate forecast.

"Seems like bulls are trying to put a bottom in place. The herd mentality of being underweight on India is at its peak," said G. Chokkalingam, founder of Equinomics, a Mumbai-based research and fund advisory firm.

The Sensex gained 1.16 percent and the Nifty rose 1.04 percent, heading for their highest close in nearly 2-1/2 weeks.

Shares are also set to snap a losing streak of three weekly declines, if Friday doesn't witness any steep falls.

However, foreign outflows continue with overseas investors selling shares worth $1.3 billion in May and June on fears a weak monsoon may stoke inflation and delay further rate cuts and key reforms such as the land acquisition bill.

Reliance Industries gained 4.5 percent, extending gains to nearly 11 percent in the last five sessions, after Chairman Mukesh Ambani on Friday said the company could be ready to begin 4G phone services in December.

Among other blue-chip stocks, Tata Motors gained 2.6 percent and HDFC Bank rose 1.6 percent.

Select state-run banks and private lender ICICI Bank rose on hopes that a hike in import duty for the ailing steel sector would help them better service their loans.

Oriental Bank of Commerce gained 1.5 percent and Punjab National Bank rose 1 percent, while ICICI Bank advanced 0.7 percent.

Asian Paints rose 2.4 percent after Jefferies upgraded the stock to "buy" from "hold" saying the worst for the demand cycle is behind.

($1 = 64.0950 rupees)

(Reporting by Abhishek Vishnoi; Editing by Sunil Nair)