(Reuters) - Indian shares shed early gains to end largely flat on Tuesday after the main opposition Congress party said it would form an alliance with the Janata Dal (Secular) party to rival Prime Minister Narendra Modi's Bharatiya Janata Party (BJP) in the assembly elections in the southern state of Karnataka.
BJP looked set to win the largest number of seats in the assembly elections in the state, which would give Modi momentum for a re-election bid next year and open the path for more reforms, which investors view as a positive for markets.
The broader NSE Nifty closed down 0.04 percent at 10,801.85, while the benchmark BSE Sensex ended 0.04 percent lower at 35,543.94.
Earlier in the session, both indexes rose over 1 percent to hit their highest in more than three months.
Meanwhile, Indian bonds and the rupee weakened to multi-month lows, as global crude oil prices rose and the local inflation print came in higher than expected.
The 10-year benchmark bond yield closed up 7 basis points at 7.90 percent, while the rupee ended at 68.15 to the dollar after its sharpest single-day fall in about a year, despite a likely intervention by the Reserve Bank of India (RBI) in early trade that led to a temporary recovery.
Tata Motors Ltd was the top decliner on both indexes, hitting its lowest in more than two years, before ending 4.2 percent lower.
(Reporting by Jessica Kuruthukulangara in Bengaluru and Abhirup Roy in Mumbai, Editing by Sherry Jacob-Phillips)
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