Sensex, Nifty rise after widely expected Fed rate hike

MUMBAI (Reuters) - India's share markets rose on Thursday, heading for a fourth consecutive session of gain after the U.S. Federal Reserve raised interest rates for the first time in nearly a decade and signalled its tightening cycle would be "gradual."

The Fed's hike signalled faith that the U.S. economy had largely overcome the wounds of the 2007-2009 financial crisis, although the central bank also made clear its stance would remain "accommodative."

Gains tracked a rally in Asian markets, while India's volatility gauge VIX fell as much as 15.4 percent, heading for its biggest single-day fall since Sept. 18 and raising the odds for a December or 'Santa' rally.

Investors also booked profit, capping broader gains, given uncertainty about the outlook for Indian markets in 2016 as the government continues its attempt to pass key reforms bills in parliament and earnings remain lacklustre.

"The markets had factored this (Fed hike) in, the Santa rally which we had predicted is now happening," said Kapil Khandelwal, director at Equnev Capital.

"But directionally we see 2016 being a down year for the markets, there's no major trigger in terms of corporate earnings."

The broader Nifty was 0.9 percent higher, while the benchmark Sensex was up 0.85 percent at 2.23 p.m.

Both indexes kept slipping into the red only to recover soon after.

Among stocks that gained, steel companies advanced after a government order to curb imports. Tata Steel rose 3.4 percent, while Steel Authority of India gained 4.3 percent.

But declines in auto, consumer and select financial stocks slightly edged out gains in healthcare, utilities, industrials, and materials stocks.

IDBI Bank shares rose 6 percent on a report that the government was planning to transfer the lender's bad loans to a separate entity.

Mahindra and Mahindra continued to see some selling pressure and was down 0.2 percent, still absorbing the impact of a temporary ban on registering diesel vehicles in Delhi.

ONGC saw some profit-taking and fell 2 percent after Wednesday's 4 percent gain.

(Reporting by Karen Rebelo in Mumbai; Editing by Subhranshu Sahu)