By Abhishek Vishnoi
MUMBAI (Reuters) - The BSE Sensex rose on Tuesday to their highest close in nearly two weeks, led by gains in lenders after the Reserve bank of India (RBI) cut an overnight interest rate on Monday, further unwinding extraordinary measures taken to defend the rupee.
Still, indexes failed to hold onto early gains of more than 1 percent as broader sentiment is expected to turn cautious ahead of July-September earnings which are expected to be weighed down by weakening economic growth and the rupee volatility.
The government will have to rein in spending and cut subsidies to meet its fiscal deficit target, Finance Minister P. Chidambaram told Reuters on Monday, underlining that an austerity drive will not be blown off course by an election due next year.
The continued U.S. government shutdown and political stalemate over the country's debt ceiling also continues to dent sentiment globally.
"Markets would be watchful of the earnings season from here onwards alongside more clarity on the RBI's stance on rates, as the rollback of extraordinary measures has already been factored in," said Deven Choksey, managing director of K R Choksey Securities.
The benchmark BSE index closed up 0.44 percent, or 88.51 points, at 19,983.61 after rising as much as 1.3 percent.
The broader NSE index rose 0.38 percent, or 22.25 points, to end at 5,928.40.
Although banks had initially rallied on expectations the Reserve Bank of India's move late on Monday to cut the margin standing facility would lower funding costs, some of that positive sentiment waned as any benefits would be offset by expected interest rate hikes by the central bank in its next policy review on October 29.
Infrastructure companies gained after TV channels ET Now and CNBC-TV 18 reported that the cabinet has allowed developers to defer the bulk of the payments they must pay to the state as part of a revenue-sharing agreement for projects, without citing sources.
GVK Power and Infrastructure Ltd (NSI:GVKPIL.NS - News) surged 17.7 percent, while NCC Ltd (NSI:NCC.NS - News) gained 6 percent and GMR Infrastructure Ltd (NSI:GMRINFRA.NS - News) ended 1.1 percent higher.
However, a government spokesperson said the issue was not on the agenda of the cabinet panel that met on Tuesday. It was not immediately clear whether the issue was discussed informally.
Apollo Tyres Ltd (NSI:APOLLOTYRE) gained 1.2 percent as the Indian company and Cooper Tire & Rubber Co (CTB.N) are at odds over whether Apollo can reduce the price for its proposed takeover of the U.S. firm, the latest hurdle in a deal beset by lawsuits and labour issues.
(Editing by Subhranshu Sahu)