MUMBAI (Reuters) - The Sensex rose on Tuesday in volatile trading, snapping two sessions of falls after Hindustan Unilever surged to a record on robust earnings, although Wipro dropped after the software services exporter issued a subdued earnings forecast.
A rebound in China's factory data on Tuesday only had a brief impact as investors focused on the euro zone debt crisis, especially as Spain's rising debt yields spark concerns the country would need a bailout.
Adding to the fears, Moody's Investors Service downgraded Germany's sovereign outlook to "negative" on Monday, while data on Tuesday showed euro zone private sector continued to shrink.
At home, days after the presidential elections, investors are still waiting for the government to act decisively and take tough decisions to revive the economy by reducing the fiscal deficit and reviving the investment cycle.
"The main thing on the mind of market is policy issues because I think global factors are factored, unless there is a catastrophic event in Europe," said Sandip Sabharwal, CEO of Portfolio Management Services at brokerage Prabhudas Lilladher.
"Given valuations are cheap, what we need to see is how the government moves on policy initiatives."
The Sensex rose 0.24 percent to 16,918.08 points, snapping a 2.3 percent fall over the previous two sessions.
The Nifty gained 0.24 percent to end at 5,128.20 points.
As investors track developments in the euro zone and at home, markets are likely to react to a slew of earnings announcements due this week, traders said.
CLSA upgraded its target price on the stock to 485 rupees while retaining its "overweight" rating, calling Hindustan Unilever's earnings "a strong all-around performance."
Other consumer goods stocks also rose, as they are seen as a defensive play with good growth potential.
Cigarette maker ITC
Shares in sugar refiners rose as domestic sugar futures extend gains, helped by higher demand and by concerns poor rainfall in cane-growing areas could trim production.
However, among decliners, Wipro
Shares in Idea Cellular
Shares in Reliance Communications
The telecoms carrier has dropped 6 percent over Monday and Tuesday after the company shelved a planned Singapore initial public offering for its unit.
(Additional reporting by Abhishek Vishnoi; Editing by Rafael Nam)