(Corrects milestone for BSE to highest close since January 2011 from November 2010, paragraph 8)
* BSE index gains 0.19 pct; NSE index up 0.28 pct
* Rate cut expectations drive blue chips
* Cement makers gain on favourable ruling
By Himank Sharma
MUMBAI, May 17 (Reuters) - Indian shares edged higher on Friday to new 2-1/2-year highs as continued hopes for rate cuts bolstered sentiment for blue chips such as ICICI Bank and Larsen & Toubro, although some analysts warned the recent rally could be running out of steam.
Cement makers such as UltraTech rose after an Indian tribunal looking into an appeal on record fines imposed by the competition watchdog ordered them to deposit only 10 percent of those fines for now as it continues its deliberations.
The NSE index gained 1.31 percent for the week, posting its fifth consecutive week of gains. Data showing easing wholesale inflation on Tuesday has sparked hopes the Reserve Bank of India may cut interest rates as early as next month, after already easing rates three times this year.
Strong gains in global share markets have also helped domestic indexes. Foreign investors have been net buyers for 21 consecutive sessions as of Thursday, bringing in a net of about $13 billion in 2013, regulatory data shows.
"Markets have been running up one way, mainly driven by foreign liquidity. There is no big fundamental trigger at this point except for softening of interest rates and inflation," said Deepak Jasani, head of retail research at HDFC Securities.
"In terms of demand and supply scenario, there hasn't been any major improvement so we do expect a correction in the coming few sessions."
The NSE index rose 0.28 percent, or 17.40 points, to 6,187.30, its highest close since November 2010.
The benchmark BSE index gained 0.19 percent, or 38.79 points, to 20,286.12 points, marking its highest close since January 2011.
For the week, the BSE index rose 1 percent.
Rate cut hopes continued to boost ICICI Bank Ltd, which rose 1.9 percent after earlier hitting its highest since November 2010. India's biggest private sector lender has gained almost 6 percent this week.
Engineering and construction companies also gained on hopes the sector will benefit from interest rate cuts and government capital spending close to the national elections.
Larsen & Toubro Ltd rose 1.9 percent, while Jaiprakash Associates Ltd gained 2.8 percent.
Ambuja Cements Ltd rose 2.1 percent, after earlier hitting its highest since May 3. UltraTech Cement was up 0.7 percent.
Cement companies were granted a stay on a 60-billion-rupee ($1.1 billion) penalty imposed by the country's competition watchdog in June, but ordered by the regulatory tribunal to deposit 10 percent of the amount.
Shares in JM Financial Ltd surged 13.38 percent after the company said former Citigroup Chief Executive Vikram Pandit is buying a stake in the Indian financial services company.
However, drugmakers fell after the Indian government formally notified a new drug pricing policy designed to increase the number of drugs deemed essential that are subject to price caps.
Some shares also fell on profit-booking. State Bank of India fell 0.23 percent after gaining almost 5 percent earlier this week.
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