By Rajkumar Ray NEW DELHI, Nov 4 (Reuters) - Indian state-run banks vowed on Tuesday to follow the central bank's lead and cut lending rates, as the finance minister said credit flows and liquidity stretched by the global financial crisis would be closely tracked. Shares rose 2.8 percent, a fifth successive rise, and the rupee clocked up its biggest gain in more than a decade to close at 47.69/71 per dollar, its strongest since Oct. 14, on optimism lower lending rates would boost markets and economic activity. The central bank has taken several steps to ease a cash squeeze and shore up growth in Asia's third-largest economy, including slashing banks' reserve requirements and cutting its short-term lending rate, as authorities battle to protect the economy from swirling global woes. "The major issue is of course liquidity, price and credit delivery," Finance Minister Palaniappan Chidambaram told reporters after a meeting with the heads of state-run banks. "But liquidity is a snapshot. We have to assess liquidity everyday. So this is a continual exercise and the RBI will keep a close watch over liquidity." Prime Minister Manmohan Singh on Monday said all fiscal and monetary steps would be taken to protect economic growth, which has clocked 9 percent and above for the past three fiscal years. The central bank expects 7.5 to 8.0 percent growth this fiscal year but many analysts say it will be closer to 7 percent. Analysts said the RBI's sudden decision to lower its lending rate by 50 basis points to 7.5 percent on Saturday and slash banks' reserve requirements to release funds showed its concern that economic strains were quickly worsening. India has followed central banks around the world in cutting rates, and on Monday Singh said New Delhi was working closely with other countries to ensure coordinated policy action to contain the crisis. CHEAPER LOANS After Tuesday's meeting, the country's top lender, State Bank of India (SBI.BO: Quote, Profile, Research, Stock Buzz), said it could lower rates by up to 50 basis points. Indian Bank said it would consider cutting its lending and deposit rates by 50-75 basis points. Chidambaram said he asked the banks to provide him with a fortnightly report detailing credit flows to various sectors of the economy so that authorities could respond more quickly. "Public sector banks stand ready to enhance the credit requirements for credit limits of all standard accounts in the MSME (micro, small and medium enterprises) sector," he said, adding banks had assured him they could meet the credit needs of the housing sector as well. India's economic growth is seen slowing as the global credit crisis hits sectors such as housing and construction, and as the tight monetary policy of previous months hurts industrial output. Trade Minister Kamal Nath said India would further ease foreign investment rules, including those relating to defence production, as policy makers move to woo capital inflows. Foreign funds have sold $12.6 billion worth of Indian stocks in 2008, after buying a record net $17.4 billion last year, and the rupee has fallen around 19 percent in the same period. (Additional reporting by C.J. Kuncheria and Manoj Kumar; Writing by Surojit Gupta; Editing by Mark Williams)

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