Sensex drops 1.8 pct; Reliance Industries, banks fall

NEW DELHI (Reuters) - The BSE Sensex fell 1.8 percent on Friday and was on course to log its first weekly loss in four as fears of a global recession hit world stock markets.

Lenders and energy major Reliance Industries led the losses among the large stocks as investors remained shaken after the main index had slumped 4.1 percent on Thursday, its biggest one-day fall in more than 2 years.

"The market is responding to the European and the U.S. problems," said K.K. Mital, head of portfolio management at Globe Capital in New Delhi.

"A resolution of the problems is not in sight and the situation remains uncertain," he said, adding investors were using any uptick to unwind positions.

Export-driven software services companies such as Infosys and Tata Consultancy Services initially climbed after the rupee slid to its lowest in more than 28 months, but the gains were short-lived and the stocks fell.

By 11:32 a.m. (0602 GMT), the main 30-share BSE index was down 1.76 percent at 16,073.36, with all but two of its components falling.

The benchmark is down more than 5 percent so far this week. A lower close on Friday will make it the index's worst week in at least five. On the year, the index is down more than a fifth.

The wider 50-share NSE index fell 1.78 percent to 4,836.20. In the broader market, there were six losers for every gainer on total volume of about 278 million shares.

Asian stocks fell to a 16-month low and emerging market currencies tumbled on Friday amid fears of a global recession, but a pledge from the G20 to preserve financial stability helped stem losses.

The MSCI's measure of Asian markets other than Japan was down 2.54 percent. Japanese markets were shut on Friday for a public holiday.

S&P 500 futures however were trading higher on Friday, suggesting Wall Street stocks might steady up later after a drop of around 3 percent on Thursday.

Reliance Industries, the country's most valuable firm and the heaviest stock in the main index, was down 1.8 percent at 772.50 rupees.

Top lender State Bank of India fell 1.3 percent, while rival ICICI Bank was down 2.1 percent. The sector index dropped 2.16 percent.

Tata Consultancy Services and Infosys that get most of their revenue from the United States and Europe were down nearly 1 percent each, after rising earlier as the rupee slipped to 49.9 against the dollar, the weakest since May 14, 2009.

STOCKS ON THE MOVE

* Dr Reddy's Laboratories rose as much as 1.3 percent after the drugmaker announced the launch of rivastigmine tartrate capsules, a bioequivalent generic version of Exelon, in the United States.

* Astral Poly Technik erased early gains and was down 5 percent at 206.55 rupees, a day after jumping about 20 percent following an announcement it was in "preliminary" talks with U.S.-based Lubrizol Corp for a project.

MAIN TOP THREE BY VOLUME

* Jaiprakash Associates <JAIA.NS> on 12.8 million shares

* K.S. Oils <KSOI.NS> on 9.9 million shares

* Unitech on 9.8 million shares

(Reporting by Devidutta Tripathy; Editing by Ranjit Gangadharan)