Sensex falls for 3rd day; S&P statement hurts

By Swati Bhat

MUMBAI (Reuters) - The BSE Sensex weakened for a third straight session on Thursday after Standard & Poor's said it may cut the country's sovereign rating if the next government fails to provide a credible plan to revive the economic growth.

Traders said TV reports quoting Economic Affairs Secretary Arvind Mayaram as saying that state-run oil demand has partially returned to sourcing dollars from markets also hurt shares by raising concerns about the outlook for the rupee.

Foreign funds which have been net buyers of Indian equities for the last 23 consecutive sessions could get cautious about investing further if the rupee gets volatile, dealers said.

Overseas funds' purchase of around $4 billion worth of shares since the Federal Reserve delayed in mid-September a tapering of monetary stimulus had helped the benchmark index hit a record high of Sunday.

"The oil marketing companies buying dollars in the market and the likelihood of the special dollar window closing soon hurt stocks," said Arun Kejriwal, founder of Kejriwal Research and Investment Services.

"We saw some profit-taking in banking shares. The outlook now depends on the end of day data tomorrow," he said, referring to the U.S. non-farm payrolls due post domestic market close on Friday.

The BSE Sensex closed down 0.35 percent at 20,822.77. The broader Nifty closed down 0.45 percent at 6,187.25.

Indexes had earlier gained more than 1 percent, but started retreating after S&P reiterated its negative outlook on India's sovereign rating and put the onus on the new government to restore the country's growth and improve finances.

Banking sector led the losses after the S&P statement, with the NSE's banking sub-index falling 2.1 percent.

Traders said after the recent rally state-run bank stocks have become largely fair valued.

State Bank of India slipped 3.15 percent ahead of its results next week, which will set the tone for other state-run banks. Punjab National Bank declined 2.6 percent while Bank of Baroda dropped 5.95 percent.

Bharat Heavy Electricals Ltd fell 4.1 percent, leading losses on the BSE index, a day after posting a worse-than-expected 64 percent decline in quarterly earnings.

However, the CNX-IT index <.CNXIT> gained 1.3 percent after U.S.-based Cognizant Technology Solutions Corp reported a better-than-expected 22 percent rise in revenue on Tuesday with a weaker rupee further aiding sentiment.

Infosys Ltd rose 1.6 percent, Tata Consultancy Services Ltd ended 1.5 percent higher, while HCL Technologies Ltd closed up 1.85 percent.

(Editing by Anand Basu)