Sensex slumps over 1 pct; banks, Coal India drag

MUMBAI (Reuters) - The BSE Sensex and Nifty fell more than 1 percent on Friday after earlier hitting their seventh record high in the past eight sessions as lenders slumped after Bank of Baroda reported a big fall in earnings, while Coal India fell further on the government's stake sale.

The Nifty <.NSEI> was set to snap ten consecutive sessions of gains, although it has gained 6.8 percent so far this month, its best monthly performance since May 2014 when the market rallied after the election of Prime Minister Narendra Modi as Prime Minister.

Gains this month have been led by the Reserve Bank of India's unexpected rate cut, which has raised optimism about the domestic economy.

Overseas investors have remained the backbone of the rally, with net purchases of $2.1 billion so far this month till Thursday, provisional exchange and regulatory data showed.

"I think the fall was more to do with investors generating liquidity to participate in Coal India share sale. However, this will give more comfort in terms of valuations. We are cautiously optimistic," said Deven Choksey, managing director at KR Choksey Securities.

The Sensex was down 1.15 percent to 29,339.59 points after earlier gaining as much as 0.54 percent to hit a record high of 29,844.16 points, surpassing the previous milestone hit on Wednesday.

The Nifty fell 1.28 percent to 8,838.20, earlier gaining as much as 0.49 percent to hit a fresh record high.

Bank shares slumped after Bank of Baroda Ltd , India's second-biggest lender by assets, booked a 69 percent fall in quarterly profit on Friday, due to higher provisions for bad loans and a surge in tax expenses.

ICICI Bank , Andhra Bank and Vijaya Bank are expected to report earnings later the day.

Meanwhile, Coal India fell 3.9 percent after the government priced its sale of a stake at a 4.5 percent discount to Thurday's closing price.

Coal India shares were down 8.1 percent for the week and headed for their worst weekly fall since the week ended Oct. 11, 2013.

The falls in bank shares and Coal India offset the 8.5 percent gain in HCL Technologies Ltd , which on Friday reported a 28 percent increase in December quarter earnings.

($1 = 61.7900 rupees)

(Reporting by Indulal PM; Editing by Sunil Nair)