By Prashant Mehra
MUMBAI (Reuters) - The BSE Sensex fell for a fourth straight session on Wednesday, dropping 0.5 percent to its lowest close in nearly 20 months, as financial stocks continued to flounder a day after a rating downgrade of SBI.
Continuing foreign fund outflows amid lingering worries over global economic growth weighed despite firm Asian and European stocks after Europe's finance ministers agreed to safeguard euro zone banks from the spreading sovereign debt crisis.
The main 30-share BSE index fell 0.46 percent or 72.45 points to 15,792.41, its lowest close since Feb 5, 2010, with 16 of its components ending lower. The index, which had lost 5 percent in the past three sessions, rose as much as 1.1 percent in early trade.
"Fresh buying is not happening at all. What we are seeing are mainly operator-driven positions. Overall, we don't foresee the market going up until investor-driven buying comes in," said R.K. Gupta, managing director at Taurus Asset Management.
The Sensex is down nearly 23 percent this year to be among one of the world's worst-performing equity markets, weighed down by foreign fund outflows, rising interest rates and a series of alleged scandals that have hampered government policy-making.
Foreign funds have been net sellers of more than $300 million in shares this year, after purchasing a record net $29.3 billion in 2010.
Financial stocks extended losses a day after ratings agency Moody's Investors Service downgraded State Bank of India's standalone rating due to rising bad loans and a thinning capital cushion.
Earlier on Wednesday, SBI Chairman Pratip Chaudhuri said the bank hopes to receive a capital injection of up to $2 billion from the government this fiscal year.
But that did not stop SBI from slipping 3.9 percent, extending Tuesday's 4 percent fall to a more than 2-year intra-day low. The No.2 lender ICICI Bank lost 2.7 percent, while HDFC Bank shed 2.3 percent. The sector index closed down 2.4 percent.
"Globally, the financial system is undergoing a lot of stress and there is uncertainty everywhere. The investor confidence is entirely shaken," said K.K. Mital, head of portfolio management services at Globe Capital Market in New Delhi.
Software services exporters, which get majority of their revenue from the United States, gained on hopes of a stable environment after Federal Reserve Chairman Ben Bernanke promised on Tuesday more economic stimulus if needed.
India's No. 2 software exporter, Infosys, which will report quarterly earnings on Oct. 12, rose 0.4 percent. But larger rival Tata Consultancy, which remained in the green for most of the day, slipped 0.2 percent.
A sharp fall in the rupee against the dollar is seen positive for these firms, which derive bulk of their revenue in foreign currencies but spend mostly in the local currency.
Energy major Reliance Industries, which has the biggest weighting on the BSE index, fell 0.6 percent to 767 rupees. Shares in Reliance have lost more than 27 percent of their value in 2011 on concerns over slowing output at one of its key gas fields.
Automakers were among the gainers, mainly on short covering by investors ahead of Thursday's market holiday, amid hopes of festive-season demand boosting sales.
Utility vehicle maker Mahindra and Mahindra, Tata Motors and two-wheeler maker Bajaj Auto all gained between 0.4 to 1 percent.
Coal India, the world's largest coal miner, ended 1.5 percent higher at 324.70 rupees. The state-run firm has lost more than 10 percent of its value in the past two weeks on worries that a new mining bill could impact profitability.
The NSE 50-share index was down 0.44 percent to 4,751.30 points.
In the broader market, 933 losers outpaced 503 gainers on moderate volume of about 507.4 million shares.
The MSCI's broadest index of Asia-Pacific shares outside Japan ended up 0.6 percent, while Japanese shares were down 0.9 percent.
STOCKS THAT MOVED
* Engineering and construction firm Punj Lloyd Ltd rose 1.1 percent to 52.95 rupees after it secured a contract from Qatar Solar Technologies for the emirate's first polysilicon plant.
* Ashok Leyland, India's second largest commercial vehicle maker, fell 1.6 percent to 24.60 rupees after its September vehicles sales fell 17 percent.
* Rolta India fell 9.2 percent to 70.30 rupees on market talk that its promoters had pledged 92.5 percent of their holdings. The software services firm clarified after market hours that the promoter group has pledged 12 percent of its total holding in the company.
MAIN TOP THREE BY VOLUME
* Jaiprakash Associates on 28.2 million shares
* Unitech on 15.5 million shares
* Hindalco on 13.9 million shares
(Editing by Malini Menon)