* BSE index ends 0.52 pct higher; NSE index closes up 0.37 pct
* Banks, capital goods stocks gain
* Broader gains capped by continued profit-taking
By Indulal PM
MUMBAI, April 23 (Reuters) - Indian shares hit record highs for a third session in a row as infrastructure companies such as Larsen & Toubro extended recent gains while lenders including Yes Bank advanced on hopes the worst was over in terms of asset quality deterioration.
Sentiment was also supported as foreign investors remained net buyers for a third consecutive session on Tuesday, though of shares worth a modest $30.80 million, bringing their net total to $135.24 million since Thursday.
Still, broader gains were capped by continued profit-taking in recent outperformers such as Tata Motors Ltd, and by falls in regional shares after a survey showed manufacturing activity in China was still contracting in April.
Analysts expect gains to be limited in the near-term as companies post their financial results and India continues its five-week-long election process.
Markets will remain shut on Thursday when Mumbai goes to the polls.
"This is the time to be cautious as markets have spiked up substantially. You will have to look out for good quality stocks, where valuation comfort is still there," said Daljeet S Kohli, head of research at IndiaNivesh Securities.
The benchmark BSE index gained 0.52 percent to close at 22,876.54. The index earlier rose as much as 0.63 percent to a record high of 22,912.52.
The broader NSE index closed 0.37 percent higher at 6,840.80, after gaining as much as 0.68 percent to hit a life high of 6,861.60.
Investors continued to accumulate infrastructure and capital goods stocks, with Larsen and Toubro gaining 2.21 percent in a fourth consecutive winning session.
Bharat Heavy Electricals Ltd gained 1.5 percent, adding to its 0.24 percent gain on Tuesday.
Lenders also gained on hopes the worst may be behind them in terms of asset quality which had been a drag in the sector.
Yes Bank Ltd shares rose 1.6 percent after its January-March net profit rose 18.8 percent, while provisions fell 25.9 percent to 722.9 million rupees.
ICICI Bank Ltd rose 0.75 percent and Axis Bank Ltd added 1.3 percent ahead of their financial results on Friday.
Mahindra & Mahindra Ltd gained 1.2 percent after Credit Suisse upgraded the stock to "outperform" from "neutral," saying its four-wheeler autos and commercial vehicles will benefit from even a short-lived economic recovery. ID:nL3N0NF1QT]
However, recent outperformers continued to see profit-taking with Tata Motors Ltd losing 0.87 percent, adding to its 0.8 percent fall on Tuesday, while Wipro ended 1.1 percent lower, falling for the third straight session.
Among the laggards, Cairn India Ltd ended 3.1 percent lower, ahead of its earnings later in the day.
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FACTORS TO WATCH * Aussie sinks after low inflation, German PMI helps euro * Brent oil holds above $109 on economic data, Ukraine supports * Share rally peters out, euro lifted by PMI boost * Foreign institutional investor flows * For closing rates of Indian ADRs
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Politics/General Asia Macro data ($1 = 60.8850 Indian Rupees) (Reporting by Indulal PM; Editing by Anupama Dwivedi)