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Sensex gains nearly 1 pct ahead of Fed; defensives up

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Stock brokers keep watch on the key Sensex share index graph in a brokerage firm in Bombay May 13, 2004. REUTERS/Punit Paranjpe/Files

By Abhishek Vishnoi

MUMBAI (Reuters) - The BSE Sensex rose nearly 1 percent on Wednesday to mark its second straight day of gains on continued foreign inflows, while stocks perceived as defensive gained ahead of the conclusion of the U.S. Federal Reserve meeting later in the day.

Markets expect the U.S. central bank to announce a slight reduction in its $85 billion monthly bond-buying programme, while stressing that interest rates will stay low for a while.

The focus will next shift to Reserve Bank of India's monetary policy review on Friday. Dealers would be interested to see new Governor Raghuram Rajan's stance on the emergency cash tightening steps the central bank initiated in mid-July.

He is expected to leave key policy rates unchanged in his first policy review, continue with the cash tightening measures to stabilise the rupee, and focus on checking runaway inflation, a Reuters poll showed.

"More than the RBI policy, the Fed is in focus because our biggest problem is rupee instability and RBI doesn't have enough balance to support the rupee," said G. Chokkalingam, managing director and chief investment officer at Centrum Wealth Management.

Local monetary policy efforts would be to mitigate damages, if any, due to global developments, Chokkalingam added.

Foreign institutional investors bought $55.44 million worth of Indian shares on Tuesday, data from the markets regulator showed, totalling more than $72 billion rupees worth of buying over the previous nine sessions.

The Sensex rose 0.8 percent, or 158.13 points, to end at 19,962.16, marking its second consecutive day of gains.

The broader Nifty rose 0.84 percent, or 49.25 points, to end at 5,899.45.

Goldman Sachs, however, remains "underweight" on Indian shares in its Asia Pacific portfolio and maintains its NSE index target at 5,700, saying the macro outlook remains challenged, which coupled with tighter financial conditions, may lead to lower valuations.

Shares in consumer goods makers and drug companies, perceived as defensive, gained as anxiety built up ahead of the close of the Federal Open Market Committee (FOMC) meet.

Cigarette maker ITC Ltd (NSI:ITC.NS - News) gained 1.4 percent, while Hindustan Unilever Ltd (NSI:HINDUNILVR) rose 2.2 percent.

Dr.Reddy's Laboratories Ltd (NSI:DRREDDY.NS - News) gained 2.1 percent following the U.S. drug regulator's approval for selling a generic version of Celgene Corp's (NSQ:CELG - News) anti-cancer drug Vidaza. DRL shares rose 3.6 percent on Tuesday.

Ranbaxy Laboratories Ltd (NSI:RANBAXY.NS - News) gained 1.4 percent on value buying for the second day after a ruling from the U.S. health regulator on its Mohali factory triggered the worst single-day fall in its stock on Monday, wiping off a third of its market value.

Other pharmaceutical shares gained too. Cipla Ltd (NSI:CIPLA.NS - News) ended 1.2 percent higher, while Sun Pharmaceutical Industries Ltd (NSI:SUNPHARMA.NS - News) rose 0.9 percent.

GMR Infrastructure Ltd (NSI:GMRINFRA.NS - News) rose 2.3 percent, adding to Tuesday's 2.1 percent gain after the company said it had sold its majority stake in a highway construction unit for about 2.22 billion rupees, which will help the company reduce its debt.

Coal India Ltd (COAL.NS) rose 1.3 percent on expectations of positive announcements from its annual shareholders meeting later in the day, dealers said.

JSW Steel Ltd (NSI:JSWSTEEL.NS - News) shares rose 0.8 percent after J.P. Morgan upgraded the stock to "overweight" from "neutral" and raised its target price to 850 rupees from 720, citing rupee boost to export earnings followed by margin expansion from new projects.

Among stocks that fell, HCL Technologies Ltd (NSI:HCLTECH.NS - News) lost 0.8 percent, falling for a third session in four, on profit-taking after hitting its all-time high of 1,081.85 rupees on September 12.

Non-banking lenders slumped for a second day after the Reserve Bank of India tightened rules for loans against gold on Monday.

Muthoot Finance Ltd (NSI:MUTHOOTFIN) fell 6.4 percent, adding to Tuesday's 8 percent plunge, while Manappuram Finance Ltd (NSI:MANAPPURAM) fell nearly 5 percent for the second day.

(Editing by Prateek Chatterjee)