NEW DELHI (Reuters) - The BSE Sensex rose in Wednesday morning trade after a three-day losing streak, with technology shares leading the gains mirroring their U.S. peers, while lenders struggled to find feet a day after a rating downgrade of top lender State Bank of India sent stocks reeling.
Continuing foreign fund outflows in a risk-off market on lingering worries over the health of the global economy also limited the upside.
At noon (0630 GMT), the main 30-share BSE index was up 0.62 percent at 15,962.88 points, with 21 of its components rising. The index, which had lost 5 percent in the past three sessions, rose as much as 1 percent in early trade.
"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.
"Until the dust settles in the global financial system, markets will continue to remain volatile."
Investors remained sceptical about whether European leaders are going far enough in their efforts to stop the region's sovereign debt woes from sparking a full-blown banking crisis.
Doubts also grew over the sustainability of a rise in U.S. stocks on Tuesday, which came after Federal Reserve Chairman Ben Bernanke eased concerns over the damage to the U.S. economy from a possible Greek default with a promise of more economic stimulus if needed.
The main index is down more than 22 percent this year to be among one of the world's worst-performing equity markets, weighed down by rising interest rates that have started hurting corporate profits and a series of alleged scandals that have hampered government policy-making.
Foreign funds have been net sellers of more than $500 million in shares this year, after purchasing a record net $29.3 billion in 2010.
The wider NSE 50-share index was up 0.58 percent at 4,799.80 points. In the broader market, there were 676 gainers for 682 losers on volume of about 198 million shares.
Software services exporters, which get majority of their revenue from the United States, gained after a late rally in U.S. stocks. The top two software exporters, Tata Consultancy and Infosys Ltd rose 1.2 percent each, while third-ranked Wipro added 1.5 percent.
A sharp fall in the rupee against the dollar is also a positive for these firms, which derive bulk of their revenue in foreign currencies but spend mostly in the local currency.
State-run lender SBI was down 2.5 percent, extending Tuesday's 4 percent fall after ratings agency Moody's Investors Service downgraded its standalone rating, citing its modest capital and deteriorating asset quality.
SBI Chairman Pratip Chaudhuri said on Wednesday the downgrade was unlikely to push up its overseas borrowing costs "significantly", but could raise its medium-term note borrowing costs by 1-2 basis points.
No.2 lender ICICI Bank fell 2.3 percent, while sector index was down 1.32 percent.
MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.5 percent, but Japanese shares were down 1.3 percent after early gains.
STOCKS ON THE MOVE
* Shares in Punj Lloyd Ltd were up 2.2 percent at 53.50 rupees after the engineering and construction firm said it received a contract from Qatar Solar Technologies for the emirate's first polysilicon plant.
* Shares in Ashok Leyland, India's second largest commercial vehicle maker, were down 1.2 percent after its September vehicles sales fell 17 percent.
MAIN TOP THREE BY VOLUME
* Jaiprakash Associates on 8.5 million shares
* Unitech on 4.6 million shares
* IFCI on 4 million shares
(Reporting by Devidutta Tripathy; editing by Malini Menon)
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