By Abhishek Vishnoi
MUMBAI (Reuters) - The BSE Sensex rose more than 1 percent on Friday to its highest close in nearly a month, as ONGC rose on hopes of a diesel price hike and lenders rallied for a second day after the Reserve Bank of India (RBI) this week raised their overseas borrowing limits.
Rising speculation that the government will soon hike diesel prices by close to 10 percent in a bid to cut the biggest item in the country's import bill also helped shares.
The gains in the rupee after new RBI chief Raghuram Rajan made a strong debut by unveiling a slew of proposals to support the currency and open up markets has improved market sentiment.
Traders say there are increasing expectations the government will also unveil fiscal reforms including, potentially, a hike in fuel prices.
Foreign investors bought 11 billion rupees worth of Indian cash shares and about 12 billion rupees of equity index futures on Thursday, exchange data showed.
Investors are also eyeing key U.S. jobs data due later on Friday that could help determine a timeline on when the Federal Reserve will start winding down its massive stimulus programme.
"We need to improve the investment climate and make it attractive for more funds to flow in. Further initiatives on the rupee and on fiscal reforms will help in taking the markets higher," said Dipen Shah, Head of private client group research at Kotak Securities.
The Sensex rose 1.53 percent, or 290.30 points, to end at 19,270.06, gaining for a third consecutive session on Friday and ending at its highest since August 14.
The index was up 3.5 percent for the week.
The broader Nifty rose 1.56 percent, or 87.45 points, to end at 5,680.40, closing up 3.8 percent for the week.
Private banks gained for a second day after banking stocks already posted their biggest single-day gains in over four years on Thursday as the central bank raised overseas borrowing limits for lenders as part of a slew of measures unveiled by new RBI Governor Rajan.
The NSE bank index gained about 12.6 percent over Thursday and Friday.
Shares in state-owned oil companies gained on hopes that the government would go for a one-time hike in diesel prices after the parliament's extended monsoon session ends on Saturday, multiple dealers said.
Oil and Natural Gas Corporation (NSI:ONGC.NS - News) gained 6.7 percent, while among oil marketing companies Bharat Petroleum Corporation (NSI:BPCL.NS - News) rose 4.3 percent and Hindustan Petroleum Corporation (NSI:HINDPETRO.NS - News) gained 6 percent.
Hindustan Oil Exploration Co (NSI:HINDOILEXP) gained 5 percent after it said the ministry of petroleum and natural gas approved commerciality of a hydrocarbon discovery.
Reliance Communications (RLCM.NS) shares rose 2.7 percent after the company said it has appointed a new CEO for its India enterprise business where revenues and profits are seen growing by 30 percent annually over the next five years.
Bharti Airtel (NSI:BHARTIARTL) surged 5.9 percent after Nomura upgraded the stock to "buy" from "neutral", citing the company's optimistic outlook on operational trends and forex impact.
Among decliners, shares in Sesa Goa (NSI:SESAGOA.NS - News) fell 1.8 percent as the lock-in period related to its merger with Sterlite Industries (India) (STRL.NS) ended as of close of trade on Thursday.
That makes 2.09 billion shares in Sesa available for trade as of Friday after the merger between Vedanta Resources Plc (VED.L) companies Sterlite and Sesa Goa.
(Editing by Sunil Nair)