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Sensex gains 266 points; blue-chip stocks recover

By Abhishek Vishnoi

MUMBAI (Reuters) - The BSE Sensex rose on Monday to its highest close in nearly 2-1/2 weeks as some blue chips recovered from recent steep falls, with ITC jumping after a UBS report said the company had raised prices of a key cigarette brand.

Gains also tracked Asian shares which climbed to their two-week highs as a delay in potential U.S. military action in Syria and improving economic data from China and Europe boosted appetite for riskier assets.

An oversold market after three consecutive months of decline till August, is making traders hopeful of market friendly measures like a hike in diesel price after the passage of the Land Legislation bill and the Food Security bill by parliament was seen as populist.

"After such battering, a short-term recovery can be seen but underlying fundamentals are very weak unless some new measures are unveiled to curtail deficit," said G. Chokkalingam, managing director and chief investment officer at Centrum Wealth Management.

The benchmark BSE Sensex rose 1.43 percent, or 266.41 points, to end at 18,886.13, marking its fourth consecutive day of gains.

The broader Nifty rose 1.44 percent, or 78.95 points, to end at 5,550.75, closing above the psychologically important 5,500 level.

ITC Ltd (ITC.NS) gained 3.8 percent after the company raised prices of a key cigarette brand, UBS said.

"ITC has raised prices for Gold Flake King-Size (GFK) from 136 rupees to 150 rupees (pack of 20)," UBS said in a note to its clients on Monday.

Shares in Axis Bank Ltd (NSI:AXISBANK.NS - News) rose 3.8 percent and IDFC Ltd (NSI:IDFC.NS - News) gained 3.7 percent as last week's selling, sparked by their exclusion from MSCI indices, was seen as overdone, traders said.

Axis Bank dropped 15 percent last week, its biggest weekly fall since July 2009, ahead of its exclusion from MSCI standard and large cap indexes effective on Monday.

IDFC fell 22.4 percent in the previous week as MSCI said the company would be deleted from its global standard indexes effective September 2.

Banks gained on hopes of potential reversal of the RBI's liquidity tightening measures announced in July, dealers said.

ICICI Bank Ltd (NSI:ICICIBANK.NS - News) rose 2.8 percent, while Yes Bank Ltd (NSI:YESBANK.NS - News) ended 3.9 percent higher.

Lupin Ltd (NSI:LUPIN.NS - News) gained 3 percent after the company got the final approval from the U.S. Food and Drug Administration for a generic version of eye drop Gatifloxacin on Friday, according to the web site of the U.S. regulator.

Jet Airways (India) Ltd (NSI:JETAIRWAYS) ended 5.5 percent higher after rising as much as 7.7 percent following Etihad Airways' comments that it expected its investment in the Indian carrier to be cleared by Indian authorities "imminently".

However, among stocks that fell, Hero MotoCorp Ltd (NSI:HEROMOTOCO) lost 1.1 percent after the company's sales for August, at 459,996 units, came in lower than analysts' estimates.

(Editing by Subhranshu Sahu)