BSE Sensex edges down in choppy trade

The BSE Sensex drifted 0.2 percent lower in choppy trade on Wednesday in the absence of any domestic trigger, as investor focus fell once again on the U.S. Federal Reserve which is widely expected to come up with a new plan to stimulate its faltering economy.

Lenders, which have been battered down 11 percent in the past two months, rebounded, with the sector index rising nearly 1 percent to a two-week high on value buying. The BSE auto index shed a similar amount on cooling demand fears.

The Fed is expected to announce at 1815 GMT plans to rebalance its portfolio in favour of longer-dated bonds and so push long-term interest rates -- already near historic lows -- even lower in a move known as Operation Twist.

Persistent concerns about a possible default on Greek sovereign debt limited any excitement ahead of the Fed, with Greece and international lenders yet to reach a deal to give Athens more loans despite some progress.

The main 30-share BSE index ended down 34.13 points at 17065.15, with 16 of its components closing in the red.

"The concerns in Europe remain unanswered," said Arun Kejriwal, strategist at research firm KRIS.

European stocks fell around 0.5 percent while Asian markets were largely unchanged on the day.

"There is nothing much the Fed can do," Kejriwal said.

Mumbai markets have fallen 17 percent so far in 2011, making it one of the worst performers globally.

Top state-run lender State Bank of India closed up 0.95 percent, while No. 2 lender ICICI Bank rose 2.14 percent.

"There is a feeling that the RBI (Reserve Bank of India) may pause rates," said Deven Choksey, chief executive at brokerage K.R. Choksey.

India's central bank, which raised key lending rate for the 12th time in 18 months last Friday, is widely seen to be nearing the end of the tightening cycle.

Automakers fell after a newspaper reported that car makers have slashed output in the festive season, for the first time in a decade as higher interest rates and rising fuel cost hurt demand. India's festive season runs from August to November.

Top car maker Maruti Suzuki, still struggling with a labour strike at its Manesar plant in northern Haryana state, fell 2.79 percent to 1122.70 rupees. Tata Motors was down 0.81 percent.

Index heavyweight Reliance Industries also shed 1.67 percent to 837.60 rupees, after gaining 3.68 percent in the previous session.

India's $76-billion software services industry, which on Tuesday drove the 2.1 percent rally in the broader market, was subdued. Top software exporter Tata Consultancy Services fell 1.37 percent to 1043.50 rupees, while smaller rival Infosys remained flat.

The broader 50-share NSE index closed down 0.14 percent at 5,133.25 points. Four shares advanced for every decline in the broader market on a total volume of about 611 million shares.

STOCKS THAT MOVED

* Pantaloon Retail closed up 3.35 percent at 257.30 rupees after a newspaper reported that the Future Group, which owns the retailer, was in talks with Japan's convenience store chain Lawson Inc to sell a 49 percent stake in its food sourcing and manufacturing operations.

* Sterlite Technologies rose as much as 6.2 percent after the optical fibre cables and power transmission tower maker received a 1.14-billion-rupee contract from state telecoms firm BSNL. It closed up 4.38 percent at 41.70 rupees.

* Eicher Motors rose as much as 4.5 percent after Bank of America Merrill Lynch raised its target price for the vehicle maker. It closed up 3.82 percent to 1,615.15 rupees.

TOP 3 BY VOLUME

* K.S. Oils on 36.9 million shares

* Unitech on 32 million shares

* Jaiprakash Associates on 22.7 million shares

(Additional reporting by Anurag Kotoky; editing by Malini

Menon)