MUMBAI (Reuters) - Indian stock markets rose more than 2 percent on Wednesday, on track for their second straight gain, led by banking stocks after the Reserve Bank of India said it would ease capital requirement rules.
Investors also drew comfort from a rally in Asian shares, which touched two-month highs on Wednesday as overnight gains in oil prices and a batch of positive economic data from Australia to the United States calmed fears of a global economic slowdown.
At home, State Bank of India surged 10 percent after the RBI on Tuesday eased rules on what lenders can count towards their core capital requirements under upcoming Basel III rules, easing pressure on the cash-constrained sector.
The gains on Wednesday build on the 3.4 percent rise on Tuesday after the government stuck to its fiscal deficit target for the next financial year, raising hopes the RBI would soon cut key policy rates.
"It was a pretty good budget because he (Finance Minister) did meet expectations in most areas and surprisingly given the additional commitments on the rural side, he was still able to stick to fiscal deficit target", said Geoff Lewis, senior strategist - Asia at Manulife Asset Management, which has about $301 billion in assets under management.
"Given the extent of the risks we are seeing now on the part of global investors, its drawing money back to home base from all emerging markets," added Lewis.
The broader Nifty rose 1.95 percent to 7,363.10. The benchmark BSE Sensex gained 1.7 percent to 24,183.13 and was set to post its best two-day gain since August 2011.
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Lenders led the gainers as RBI's move was seen freeing up an estimated 300-350 billion rupees ($4.42-$5.16 billion) for state-owned lenders and 50 billion rupees for private sector lenders.
Bank of Baroda and Punjab National Bank rose 6-7 percent.
Meanwhile, auto makers like Tata Motors and Hero MotoCorp rose 3 percent and 7 percent on higher monthly sales.
But among laggards, Mahindra & Mahindra declined as much as 3.6 percent after company said fourth quarter margins could be impacted by around 100 bps.
(Reporting by Aastha Agnihotri; Editing by Anand Basu)