By Suvashree Choudhury and Arnab Paul
MUMBAI (Reuters) - Indian shares, bonds and the rupee currency rallied in early trade on Wednesday as crude prices softened and the Reserve Bank of India (RBI) announced a hefty open market bond purchase for January.
The rupee climbed to 69.85 to the dollar, its highest level since Dec. 3, but trimmed some of those gains to trade at 70.13, stronger than Tuesday's close of 70.48.
The 10-year benchmark bond yield fell to a more than two-month low of 7.23 percent before retracing to 7.27 percent, compared with the previous close of 7.35 percent.
Markets received a boost after the RBI announced a higher-than-expected 500 billion rupees ($7.13 billion) of open market bond purchases for next month, reinforcing expectations that the central bank was turning dovish under Shaktikanta Das who joined as governor last week.
On Tuesday, oil prices tumbled more than 5 percent due to fears of oversupply and deteriorating demand, deepening a selloff that has dragged major crude benchmarks down more than 30 percent from an October peak.
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Softer crude prices have also strengthened India's macro-economic indicators, including inflation and its trade deficit, given the South Asian nation imports some two-thirds of its oil needs.
That has also made foreign investors more optimistic, and in November net dollar flows turned positive for the first time since March, barring a small positive in July.
Net foreign dollar inflows into Indian debt and equity were $1.8 billion in November and have reached $831.8 million so far this month, although since January, there have been net outflows of $11.4 billion.
Indian shares were on track for a seventh successive session of gains, with the broader NSE index set to clock its best rally since a nine-day streak in April.
With a 3.59 percent gain, the NSE is among the top performing indexes globally this year up to Tuesday, eclipsing the FTSE 100 index, the S&P 500 and Hang Seng index, each of which have fallen in the same period.
"Given the trade war between U.S. and China, and India being a consumption-driven market, (Indian markets have) definitely benefited," said AK Prabhakar, head of research at IDBI Capital in Mumbai.
"Infusion of liquidity, especially after the IL&FS debacle, has also been a key factor," he said, referring to a string of defaults by major infrastructure financing and construction company IL&FS.
The NSE Nifty climbed 0.28 percent to 10,939.10 by 0603 GMT, while the BSE Sensex was 0.19 percent higher at 36,415.37.
Financial firms Indiabulls Housing Finance and Bajaj Finance were among the top gainers on the NSE index, rising 5 percent and 2.2 percent, respectively.
Oil marketing companies continued to climb as crude prices hovered around 14-month lows. Hindustan Petroleum Corp Ltd and Indian Oil Corp Ltd rose around 1.2 percent each.
"Crude is definitely a boost at the moment but going forward it is difficult to predict the market, given the high valuations especially in the large caps," Prabhakar said.
Shares of billionaire Anil Ambani's Reliance Communications Ltd plunged as much as 13 percent after a report that the government had rejected a proposed spectrum sale.
(Reporting By Arnab Paul in BENGALURU and Suvashree Choudhury in MUMBAI; Additional reporting by Gaurav Dogra in BENGALURU; Editing by Sai Sachin Ravikumar)