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INDIA STOCKS-Indian shares drop, though bullish services data helps pare losses

(Updates levels, adds analyst comments)

BENGALURU, Dec 5 (Reuters) - Indian shares were lower for a second straight session on Monday amid volatile trading as investors took a breather after an eight-day rally, although the main indexes were off their session lows, helped by upbeat November services activity data.

The S&P BSE Sensex fell 0.23% to 62,721.25, as of 02:38 p.m. IST. The NSE Nifty 50 index fell 0.14% to 18,667.25.

Both the indexes had fallen 0.6% early in the session, pared all their losses around midday, before slipping again.

"Positive services PMI data could have triggered the recovery from lower levels in intraday trade," said Shrikant Chouhan, Head of Equity Research (Retail) at Kotak Services.

India's services activity grew at its quickest pace in three months in November on strong demand, lifting business confidence to its highest since January 2015, a business survey showed.

But the survey also showed elevated input prices forced firms to raise prices at the sharpest rate in about five-and-a-half years, which could further pressure overall inflation.

The reading comes as the Reserve Bank of India starts its three-day meeting, with the central bank widely expected to raise interest rates by a smaller 35-basis points, to 6.25%, on Wednesday, which analysts say have been mostly priced into the market.

Although inflation hit a three-month low in October, it remained above the RBI's tolerance range. Still, the signs of easing inflation domestically and in the United States, sent stocks on an eight-day rally through last Thursday, during which both indexes hit all-time highs.

Adding to the pressure on the day was a 1.4% rise in oil prices, which adds to inflation worries as India is one of the largest importers of the commodity.

Most of the major sectoral index were lower, with oil stocks down 0.57% and IT stocks down 0.84%.

Among the few bright spots, metal stocks gained 1.55% on expectations of strong global and domestic demand.

While the benchmarks were volatile, the small- and mid-cap stocks were higher by 0.34% and 0.15% respectively.

Volatility in markets is also likely to persist ahead of state election results due later this week, as traders attempt to "manage their positions," Chouhan said. ($1 = 81.4100 Indian rupees) (Reporting by Bharath Rajeswaran and Akansha Victor in Bengaluru; Editing by Janane Venkatraman and Eileen Soreng)