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BENGALURU: Indian shares closed at a two-week high on Wednesday, taking heart from the government's plan to boost spending to pull the economy out of a pandemic-induced slump.

Led by financial and technology stocks, the blue-chip NSE Nifty 50 index closed 1.16% higher at 17,780 and the S&P BSE Sensex advanced 1.18% to 59,558.33.

Both the indexes climbed nearly 1.5% on Tuesday after the federal budget showed the government would increase spending to 39.45 trillion rupees ($527.75 billion) in the coming fiscal year to build public infrastructure and drive economic growth.

"The capex-driven budget will drive credit growth in the economy, so we may see benefits for the banking sector, which was a laggard," said Anita Gandhi, director at Arihant Capital Markets.

She also said there was some comfort around the sector's valuation and asset quality.

Indian shares rise ahead of federal budget

After recovering from a recent selloff driven by worries around US interest rates and inflation, the domestic indexes are now just 4% off the record highs they hit in October.

But rising bond yields could affect that positive momentum, Gandhi said.

The benchmark 10-year bond yield spiked to 6.8805% on Wednesday, after surging in the previous session on worries over the budget's impact on borrowing figures and the fiscal deficit.

The Nifty Bank index and the Nifty PSU Bank index led gains among sub-indexes, rising 2.1% and 3.4%, respectively.

Non-bank lender Bajaj Finance gained 3.3%, while Bajaj Finserv jumped 5%.

Heavyweight mortgage lender Housing Development Finance Corp closed 1.9% higher after reporting a higher profit.

Consumer goods firm Dabur India rose 2% on better-than-expected earnings.

Tech Mahindra ended down 1.5% after the IT services company missed expectations for quarterly profit on rising wage costs. The stock fell as much as 4.2% earlier in the session.

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