MUMBAI: Indian shares shed 0.6 percent and fell for the second day on Wednesday, in line with weak world equities, as turmoil in Libya led to higher oil prices, triggering fresh concerns over inflation.
Banks led the decline on worries increasing inflationary pressures made a case for a tighter monetary policy stance by the central bank. The sector index dropped 1.8 percent.
The 30-share BSE index declined 0.64 percent, or 117.83 points, to 18,178.33 points, with 19 of its components losing ground.
"Our market finally succumbed to the reality of the problems in world markets," said Prakash Diwan, head of institutional business at local brokerage Networth Stock Broking.
The benchmark index had risen as much as 0.4 percent earlier in the day.
"There is lack of buying support at lower levels. Investors are on the sidelines ahead of the budget," he said.
Finance Minister Pranab Mukherjee faces a tough time reining in inflation while keeping the economy on a high-growth path when he presents his annual budget for 2011/12 in parliament on Feb. 28. Foreign investors, troubled by corruption scandals and high inflation, have sold about $1.6 billion of Indian shares this year, with the benchmark index dropping 11.4 percent in the period.
The index has underperformed the broader Asian markets. The MSCI's measure of Asian shares other Japan is down only 3.7 percent year-to-date.
Top lender State Bank of India tumbled 3.8 percent, while leading private lenders ICICI Bank and HDFC Bank dropped 1.9 percent and 1.4 percent, respectively.
Reliance Industries bucked the trend after the energy giant said late Tuesday its partner Canada's Niko Resources can raise its stake to 13 percent from 10 percent in the key gas producing KG D6 block, off India's east coast.
The stock gained for the third day and closed 1.2 percent higher at 996.35 rupees.
Shares in Anil Ambani-led companies rose on short-covering, dealers said.
Reliance Infrastructure gained 12.2 percent while Reliance Capital firmed nearly 3 percent. Reliance Communications gained 1.5 percent.
State-run oil marketing companies Hindustan Petroleum Corp, Bharat Petroleum Corp and Indian Oil Corp dropped between 0.4 percent and 1.4 percent as international crude oil prices stayed firm.
Brent crude futures rose on Wednesday as Libya's ongoing turmoil fuelled fears the unrest could spread to other oil producing nations and choke supplies.
In the broader market, losers thrashed gainers in a ratio of 1.4:1 in a volume of 249 million shares, less than its three-day average daily volume of 291 million shares.
The 50-share NSE index dropped 0.6 percent to 5,437.35 points. At 1036 GMT, the MSCI world equity index was down 0.25 percent at 340.74, falling more than 2 percent from Monday's peak. The Thomson Reuters global stock index was down 0.15 percent on the day.
The FTSEurofirst 300 index fell 0.2 percent, while emerging stocks lost half a percent.
Ranbaxy Laboratories extended losses and fell 6.6 percent to 461.50 rupees after the country's top drugmaker by sales said on Tuesday it swung to a fourth-quarter loss as operating expenses rose from a year earlier.
Footwear maker Bata India closed 0.8 percent higher at 348.65 rupees after it reported its December-quarter consolidated net profit jumped 41 percent.
MAIN TOP THREE BY VOLUME ON BSE
Unitech on 6.8 million shares.
Reliance Infrastructure on 5.4 million.
Reliance Communications on 5.2 million share.
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