By Vishal Sridhar
REUTERS - Indian shares rose over 1 percent on Tuesday and were headed for a third consecutive session of gains, as automakers such as Tata Motors Ltd surged after posting strong monthly sales, while Dr. Reddy's Laboratories jumped on the launch of a drug in its key U.S. market.
Investors also keenly await the Reserve Bank of India's policy meeting on Wednesday, with the central bank expected to keep rates on hold despite a sharp slowdown in economic growth after inflation surged to a five-month high.
In more encouraging news, Indian manufacturing activity expanded for a second straight month in September, with the Nikkei/Markit Manufacturing Purchasing Managers' Index steady at August's 51.2.
But worries about the economy remain with domestic shares falling for a second consecutive month in September, hurt by a slew of negative global and domestic factors, including expectations of further rate hikes by the U.S. Federal Reserve.
"The markets are up today on strong auto sales but the caution among investors is still prevalent," said Vinod Nair, head of research at Geojit Financial Services.
"I do not expect RBI to cut the rates quickly."
The broader NSE Nifty was up 0.82 percent at 9,869.10 as of 0553 GMT, while the benchmark BSE Sensex was 0.87 percent higher at 31,555.32. Both indexes climbed as much as 1.1 percent earlier in the session.
The markets were closed on Monday for a public holiday.
The Nifty Auto index rose as much as 2.4 percent on the back of higher vehicle sales in September, with Bajaj Auto Ltd gaining as much as 3.3 percent to a record high.
Tata Motors jumped as much as 6.6 percent after the carmaker received an order from the Indian government for electric cars. The company also reported a 25 percent rise in September domestic vehicle sales.
Dr. Reddy's Laboratories jumped as much as 3.7 percent after the drugmaker announced the launch of Sevelamer Carbonate tablets, which are used to treat kidney diseases, in the United States.
Shares of SBI Life Insurance Co Ltd rose as much as 5.7 percent on their trading debut after the company's initial public offering raised $1.3 billion, as investors bet on the sector's growth potential.
Meanwhile, Reliance Communications Ltd tumbled as much as 7.8 percent to an all-time low after the company said on Sunday that a merger with Aircel had been called off due to regulatory delays and legal uncertainties.
(Reporting by Vishal Sridhar in Bengaluru; Editing by Subhranshu Sahu)
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