Sensex closes at 2-1/2 week high; IT, bank stocks gain

By Abhishek Vishnoi

MUMBAI (Reuters) - The BSE Sensex rose more than 1 percent on Wednesday, marking its highest close in nearly 2-1/2 weeks as the September trade deficit narrowed sharply, raising hopes for a significant improvement in the country's current account balance.

Lenders such as HDFC Bank Ltd led the rise as the data was seen supporting the rupee and thus potentially reducing exchange rate-led inflation pressures and the prospect of additional repo rate hikes.

Still, traders remain largely cautious given the continued standoff over the U.S. budget, while blue chips at home are gearing up to report September-quarter earnings, starting with Infosys Ltd on Friday.

"Trade data has definitely highlighted a bright spot for the Indian economy. RBI's actions alongside results would determine the market's direction from here onwards," said Deven Choksey, managing director at K R Choksey Securities.

The benchmark BSE Sensex rose 1.33 percent, or 265.65 points, to 20,249.26, marking its highest close since September 20.

The broader Nifty advanced 1.33 percent, or 79.05 points, to 6,007.45, closing above the psychologically important 6,000 level.

The NSE bank index rose 1.9 percent after falling as much as 1.9 percent after the September trade deficit came in better than expected. The deficit for the month stood at $6.7 billion, the lowest level since March 2011, compared with $10.9 billion in August.

HDFC Bank rose 2.6 percent, while ICICI Bank Ltd ended up 1.4 percent.

Shares of non-banking finance companies rose after Reserve Bank of India Deputy Governor K.C. Chakrabarty said these companies would get priority for new commercial bank licences.

IDFC Ltd rose 3.1 percent, while LIC Housing Finance Ltd ended 3 percent higher.

Software services exporters rose ahead of their earnings results. Infosys Ltd ended up 2.5 percent ahead of its quarterly results on Friday.

Tata Consultancy Services Ltd ended 1.4 percent higher, while Tech Mahindra Ltd rose 2.3 percent.

However, among stocks that fell, Jain Irrigation Systems Ltd dropped 1 percent after Morgan Stanley downgraded the stock to "equal-weight" from "overweight" and reduced its target price to 66 rupees from 80 rupees, citing margin pressures in its micro-irrigation business.

(Editing by Subhranshu Sahu)