By Pooja Thakur and Glenys Sim
Dec. 8 (Bloomberg) -- Indian stocks and the rupee rose to a three-week high while bonds gained after the central bank cut interest rates for the third time in less than two months and the government unveiled additional spending to bolster the economy.
Tata Motors Ltd., the No. 1 truckmaker, gained 5.3 percent after the government announced a 200-billion rupee ($4 billion) stimulus package, including a cut in consumption tax. Housing Development Finance Corp., the biggest mortgage lender, rose 6.1 percent, following a one percentage point cut in interest rates.
``What you really need is fiscal stimulus at this time,'' Tom Byrne, senior vice president at Moody's in Singapore, said in an interview in Singapore today.
The benchmark Bombay Stock Exchange Sensitive Index, or Sensex, added 3.1 percent to 9,246.06 at 10:57 a.m. local time, set for its highest since Nov. 17. The S&P CNX Nifty Index on the National Stock Exchange gained 3.5 percent to 2,809.80. The yield on the benchmark 10-year bond dropped to the lowest in almost four years and the rupee gained to the strongest since Nov. 17.
The local currency strengthened as much as 0.8 percent to 49.185 a dollar before trading at 49.255 in Mumbai, according to data compiled by Bloomberg. The yield on the 8.24 percent bond due April 2018 fell 5 basis points to 6.70 percent, according to the central bank trading system. The price gained 0.43, or 43 paise per 100-rupee face amount, to 110.60. It reached 6.57 percent earlier, the lowest since March 2005.
Economic Woes
India, where domestic consumption makes up 60 percent of GDP, is being buffeted by the global recession; exports fell 12.1 percent in October, their first drop in seven years. Its economic woes have been compounded by the terrorist attack on luxury hotels, a cafe and other places in its financial capital of Mumbai on Nov. 26, in which 163 people were killed.
The government said yesterday it will spend the equivalent of 0.3 percent of GDP on tax cuts, infrastructure projects and cash boosts to exporters during the year ending March 31. The Reserve Bank of India cut rates by 1 percentage point, lowering the benchmark repurchase rate to 6.5 percent.
Tata Motors Ltd. gained 5.3 percent to 161.2 rupees, leading automakers higher. The stimulus package will include a 4 percent cut on sales levies, coming after fuel prices were cut on Dec. 5.
Housing Development Finance Corp. rose 6.1 percent to 1,518.05 rupees. Lower interest rates will allow Indian companies to turn to local banks for funding rather than rely on lenders in the U.S. and Europe, where credit has dried up for many borrowers.
``This is a clear signal to commercial banks to cut lending rates,'' Paresh Nayar, chief of currency and fixed-income trading at Development Credit Bank Ltd. in Mumbai. ``This is clearly done to boost demand in the economy. Equities should benefit, and the rupee should too.''
To contact the reporter on this story: Pooja Thakur in Mumbai at pthakur@bloomberg.net; Glenys Sim in Singapore at gsim4@bloomberg.net
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