Sensex pares early gains on inflation worries

The Bombay Stock Exchange benchmark index Sensex today pared early gains and closed almost flat, as worried funds booked profit after the latest food inflation data further fuelled their fears that the RBI may tighten key policy rates tomorrow.

The 30-share index, which had lost 1,351 points in last six straight sessions of losses, surged to 16,524.69 before ending with a moderate gain of 17.05 points at 16,306.87.

Foreign funds selling to clear their positions on expiry of the January contracts in derivatives segment and investors
refraining from buying ahead of the monetary policy tomorrow mainly kept the stocks fluctuating throughout the session.

The National Stock Exchange index Nifty 50, however, fared better with a gain of 14.15 points to 4,867.25, after touching the day's high of 4,929.90.

Food inflation rose to 17.40% for the week ended January 16 from 16.81% in the previous week, according to the official data released today.

The Reserve Bank in its monetary policy review tomorrow may hike cash reserve ratio and key policy rates to check the surging prices.

In 30-BSE kitty stocks, 12 advanced while 18 declined, with the business volume rising to record high this year. In choppy trade, sectors like realty, healthcare, metal, oil and gas, information technology, auto, consumer durable and banks gained on selective buying, while shares in capital goods, FMCG and tech declined and eroded major gains during the session.

A firm ending in key-index related Tata Steel, Wipro, Sun Pharma, HDFC, DLF and Grasim kept the market in better form and helped in smapping a six-day long falling streak when the markets lost over 7%.

Initial rally in the market was backed by firm Asian markets and brokers covering their pending positions for the expiry in January contract in the derivative segment.

The Asian stocks were higher on the back of rally on the Wall  Street yesterday as US president Obama moderated his tone on  bank restrictions and the Fed kept the rates unchanged.