Thursday August 13, 11:40 AM

BSE Sensex up as sentiment improves across Asia

MUMBAI (Reuters) - The BSE Sensex (^BSESN : 16632.01 -222.92) rose 2.1 percent on Thursday, joining a broad rally across Asia after upbeat comments from the U.S. Federal Reserve about the world's largest economy lifted investor confidence.

Sentiment was also boosted after Finance Minister Pranab Mukherjee said on Wednesday India proposes to reform its archaic tax laws, phase out exemptions, simplify rules on corporate mergers and help improve compliance.

"This is first time there has been a proposal for some aggressive tax reforms since the 1960s. The market simply loves it even though it may all come into effect only much later," said Amitabh Chakraborty, president of equities at Religare Capital Markets.

The government would try to bring in a bill in the winter session of parliament, expected to start in November, with the proposed changes. The bill has to be debated in parliament and get approved to become a law, which means it could be implemented from 2011.

Major gainers spanned sectors, with private-sector lender ICICI Bank (ICICIBANK.NS : 850.9 -14.6), energy giant Reliance Industries (RELIANCE.NS : 1045.95 -17.8) and engineering and construction firm Larsen & Toubro (LT.NS : 1589.45 -41.65) pulling the main index higher.

Diversified cigarette maker ITC gained 3.1 percent to 234.30 rupees, while outsourcer Infosys Technologies (INFOSYS.BO : 2328.3 -58.55) climbed 1.1 percent to 2,064.15 rupees.

"Global liquidity is intact and it is strong. Overall momentum has also improved," Chakraborty said.

"Emerging markets like India are looking attractive again."

By 11:16 a.m. (0546 GMT), the 30-share BSE index was up 2.1 percent at 15,335.85 points, with all stocks advancing.

Still, analysts warned just bullish sentiment may not be able to spur the market significantly higher, as worries that poor monsoon rains would dent economic growth and concerns about rich valuations still persist.

India's monsoon rainfall deficit has widened further, increasing the risk of crop damage, but its impact on the country's economy was offset by high growth in June industrial output due to buoyant consumer demand.

With just over 40 percent of agricultural land irrigated, farm output is heavily reliant on rains and the shortfall could potentially hurt rural demand, which accounts for more than half of India's domestic consumption.

Economists have also cautioned the brisk rate of industrial activity might not be sustainable.

The BSE index had slid 3.25 percent last week on the rain concerns after jumping 16 percent over the previous three weeks, buoyed by a worldwide equities rally on strong corporate earnings and improving signs of a global economic recovery.

Despite concerns about rich valuations after the benchmark leapt about 87 percent from a 2009 low in early March and more than 55 percent this year, a rush of liquidity pouring into equity markets could support stocks in the near term as investors look to buy on dips, analysts said.

Positive sentiment on signals that the global economy is recovering would also lend further support.

On Wednesday, the U.S. Fed made its clearest statement to date that it sees the recession nearing an end, and that shattered financial markets are healing.

ICICI Bank rose 4.1 percent to 739.25 rupees, while Larsen advanced 2.8 percent to 1,461 rupees.

Reliance Industries, India's largest listed firm with the most weight in the main index, added 1.3 percent to 2,018 rupees.

The 50-share NSE (^NSEI : 4941.75 -63.8) index was up 2.2 percent at 4,554.55.

Asian shares were higher on Thursday, with Japan's Nikkei up 1 percent, while MSCI's measure of other Asian markets rose 2 percent.

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