Sensex set for best day in two weeks in Fed-driven rally

REUTERS - India's stock markets rose on Thursday and were on track for their best day in two weeks, led by gains in commodity stocks and as the dollar weakened after the U.S. Federal Reserve signalled fewer rate hikes this year.

The Fed held interest rates steady on Wednesday and fresh projections showed policymakers now expect two hikes by the end of 2016, half the number seen in December.

The Fed statement boosted risk appetite and lifted sentiment across the board, with Asian stocks and oil prices gaining from the potential for more money to continue flowing into equities and commodities, rather being lured by higher U.S. rates.

"Previously dollar was appreciating and that is what was bothering us. But right now, these positive inflows should continue and help rupee", said Ashu Madan, president of equity broking at Religare Securities.

The rupee rose to as much as 66.80 per dollar, its highest since Jan. 13, from its Wednesday close of 67.22.

Foreign investors have bought a net $1.66 billion of shares in March, but still remain net sellers of $1.21 billion this year.

The broader NSE Nifty was up 0.87 percent at 7563.12 at 0734 GMT, while the benchmark BSE Sensex was up 0.63 percent at 24,838.85.

At these gains, both indexes are set for their best day since March 3. At their intraday high, both indexes had risen the most also since March 3.

Commodity-linked stocks such as Vedanta and NMDC rose 2.5 percent and 3.8 percent, respectively.

State-owned oil companies Oil India , Indian Oil Corp and Bharat Petroleum Corp gained 1.4-5.6 percent after the consortium signed energy deals with Russia's Rosneft .

Mphasis rose 3.2 percent on a report that PE firm Blackstone emerged as the strongest contender to buy the IT services company from Hewlett Packard.

(Reporting by Aastha Agnihotri in Bengaluru; Editing by Savio D'Souza)