Sensex gains over 1 pct ahead of U.S. Fed meet

MUMBAI (Reuters) - The BSE Sensex rose more than 1 percent on Tuesday, in line with Asian peers on hopes weaker-than-expected economic data would prompt the U.S. Federal Reserve to leave options open on the timing of an interest rate hike.

Investors hoped downbeat data on U.S. manufacturing, industrial output and housing released on Monday would give the Fed a reason to toe a cautious line on policy.

Economists polled by Reuters were split almost evenly on whether a rate increase would come in June or later in the year.

The Federal Open Market Committee is scheduled to begin its two-day policy meeting later on Tuesday, and many analysts expect the central bank to drop the word "patient" from its formal statement on the timing of its first interest rate increase since 2006.

"The risk of a Fed rate hike can certainly lead to 500-point fall in the BSE index," said G. Chokkalingam, founder of Equinomics, a Mumbai-based research and fund advisory firm.

The U.S. macro data for April-June becomes key for the near term, he added.

The BSE index gained 1 percent, recovering from its lowest intraday level since Feb. 10 hit in the previous session.

Bank of America Merrill Lynch said the benchmark 30-shares index may touch 54,000 by end-2018 but will be range bound-to-negative over next few months.

The broader NSE index also rose 1.02 percent.

Gains also tracked higher Asian peers. MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.7 percent, after all three major U.S. stock indexes posted gains of over 1 percent on Monday.

Shares also got a fillip after IMF Managing Director Christine Lagarde on Monday described Asia's third-largest economy as a rare bright spot on a cloudy global horizon.

Blue-chips led the gainers. Housing Development Finance Corp rose 2 percent while Tata Motors rose 2.8 percent.

Reliance Industries gained 1.5 percent while ITC rose 0.9 percent.

(Reporting by Abhishek Vishnoi; Editing by Biju Dwarakanath)