Indian shares end near one-month peak on rail budget

#1
Indian shares end near one-month peak on rail budget

BOMBAY (Reuters) - Indian shares ended near one-month peaks on Tuesday and bonds rose, with investor sentiment boosted by a rail budget which held freight rates steady -- belying fears of a hike which could have driven inflation higher.

The 30-share Bombay index rose 1.75 percent to 4,928.59 points, its highest close since June 10. But the benchmark index is still down about 17 percent in 2004, making it Asia's biggest loser.

"There were some surprises in the budget which triggered short covering," said R. Parthasarthy of IDBI Capital Markets.

He said the market could see a rally of around 300 points as the index had overcome a key resistance around 4,895 points.

Railway minister Lalu Prasad Yadav earlier unveiled a populist budget that kept passenger and freight rates unchanged for the current financial year which ends in March 2005.

The government's decision to hold freight rates is expected to help costs of bulk transporters such as cement and metal companies under check, and these hopes helped fuel a rally.

Associated Cement Companies Ltd., the biggest cement producer, rose 2.7 percent to 243.70 rupees.

State-run Steel Authority of India Ltd., the biggest steel maker, climbed 5.2 percent to 30.10 rupees, while Tata Iron and Steel Co Ltd., the second-biggest maker, rose 3.6 percent to 313.25 rupees.

Analysts say transport costs account for around 30 percent of the selling price of steel and cement.

Bonds were boosted by the decision on freight rates as well as the announcement of a relatively small increase in the railways' market borrowings for the current fiscal year.

The 10-year federal bond yield closed at 5.6902 percent, marginally below Monday's 5.6918 percent, but well off a session peak of 5.7344 percent.

"A freight hike would have pushed up commodity prices and spurred inflation," said a trader at a state-run bank.

Traders are hoping that the federal budget, which is due on Thursday, will also announce market borrowings of a level which will not upset markets.

The rupee fell nearly half a percent to a one-week closing trough of 46.0300/0500 per dollar as importers hedged exposures ahead of the federal budget.

Worries over economic reforms under the new government, which took power in May the support of communists, has sparked a slowdown in foreign capital inflows in recent months, forcing the rupee lower in 10 of the last 12 weeks.
 

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