Sensex, Nifty down as energy stocks drag on weak crude prices

MUMBAI (Reuters) - Indian shares edged down on Friday as a fall in oil prices took a toll on energy stocks such as Bharat Petroleum, but indexes were still headed for their biggest weekly gain in four months, helped in part by gains in global markets.

Asian shares slipped from near-three-week highs on Friday, tracking weak oil prices as a record build in U.S. crude stocks stoked concerns about global oversupply, outweighing moves by oil producers including Saudi Arabia and Russia to cap oil output. Traders expect markets to remain volatile next week ahead of the 2016/17 budget to be unveiled on Feb. 29, while monthly contracts for futures and options will expire on Thursday. The prospect of falls in global markets could also cap gains.

Foreign investors sold a net $42.81 million worth of Indian shares on Feb. 17, taking this year's outflow to $2.47 billion.

"There is a risk aversion globally as the developed world is moving towards negative interest rates and that reflects a possibility of deflation around the globe," said Deepak Jasani, head of retail research at HDFC Securities.

"In case FIIs (Foreign Institutional Investors) are not enthused by the budgetary provisions, India could underperform even post-Budget for some time."

At 0747 GMT, the broader NSE index was down 0.26 percent at 7,173.55 while the benchmark BSE index eased 0.27 percent to 23,585.98.

Both the indexes have gained 2.6 percent this week, their biggest weekly gain since early October.

Currency and bond markets were closed on Friday for a local holiday.

Mirroring concerns over oil prices, energy shares fell with Bharat Petroleum, Hindustan Petroleum, Indian Oil shedding between 1 percent and 4 percent.

Among gainers, public-sector banks such as State Bank of India and Punjab National Bank rose more than 2 percent and 3 percent respectively after the Business Standard newspaper, citing unidentified government officials, said the government is likely to set up a "bad bank" to take over non-performing assets.

Jet Airways gained 2 percent after the Financial Express reported Etihad Airways is likely to raise its stake in Jet Airways to 49 percent from 24 percent.

(Reporting by Aastha Agnihotri; Editing by Sunil Nair)