By Pooja Thakur and Chen Shiyin Nov. 28 (Bloomberg) -- India’s stocks and rupee fell after gunmen killed at least 119 people in strikes across the financial capital of Mumbai, eroding investor confidence in the world’s second-fastest growing major economy. India’s benchmark Bombay Stock Exchange Sensitive Index, or Sensex, fell 0.5 percent to 8,980.78 at 10:10 a.m. local time, led by ICICI Bank Ltd. and Tata Steel Ltd. The rupee dropped 0.9 percent from the close on Nov. 26 to 49.875 per dollar, according to data compiled by Bloomberg. The militants targeted foreigners after storming into the Taj Mahal Palace and Tower hotel and the Oberoi Trident complex, a new tactic that threatens to disrupt tourism and inflows of investment. The benchmark Sensex index has 56 percent this year and the rupee has dropped 21 percent as a global credit crisis slowed exports and caused money market rates to surge. “It’s basically a war zone in Mumbai right now,” said Jay Moghe, a managing partner at Asian Alternative Consulting in Singapore. “Medium-term, the key influences that are affecting India are really the slowdown in the global economy, particularly with the credit crunch. This situation makes it much worse in the shorter term.” The 10-year bond yield climbed 1 basis point to 7.11 percent, near the lowest since January 2006. S&P CNX Nifty Index futures for December delivery gained 1.8 percent 2,733 as of 12:45 p.m. in Singapore trading, after falling as much as 1.2 percent. The futures fell 2.7 percent yesterday. ICICI, Tata Steel ICICI Bank, India’s second-largest lender, fell 0.8 percent to 347.6 rupees. Tata Steel, India’s biggest maker of the alloy, fell 2.7 percent to 151.25 rupees. The Sensex is set for a record decline this year and the rupee is the third-worst performer among Asia’s 10 most-active currencies outside Japan, according to data compiled by Bloomberg. International investors sold a record $13.5 billion in Indian equities this year as of Nov. 24, according to data from the Securities and Exchange Board of India, as the economy grew at the slowest pace since 2004 in the second quarter and global credit losses and writedowns approached $1 trillion. Investors bought a record $17.4 billion in 2007. Trading of bonds, stocks and currencies were halted yesterday following the attacks. The MSCI Asia-Pacific Index rose 1.7 percent yesterday when Indian exchanges were closed, after China lowered interest rates by the most in 11 years to spur economic growth. The measure climbed 1.6 percent today. “These developments in India are certainly serious from a human perspective, but in terms of markets, the tone of world markets will have more of an impact on what happens rather than the terror attacks,” Bill McQuaker, head of equities at Henderson Global Investors Ltd., said in an interview in Singapore today. ‘Vibrant’ Economy Some investors including Mark Mobius, the executive chairman of San Mateo, California-based Templeton Asset Management Ltd., also say any declines may be limited because the economy is still “vibrant” and the Sensex is valued near the cheapest level on record relative to profit. “It’s a fast-growing economy and we can’t allow this kind of incident to sway our decisions regarding where we want to invest,” Mobius, 72, said yesterday in a Bloomberg Television interview from Hong Kong. “India will rise from this and prosper.” India’s Finance Minister Palaniappan Chidambaram predicted last week economic growth will “bounce back” to 9 percent in 2009, while the International Monetary Fund in Washington said this month that India may expand 6.3 percent in 2009. Continued unrest in Mumbai may still weigh on stocks and currency trading. At least eight soldiers stormed a Jewish center in the city today in a bid to free hostages and fresh smoke was seen emerging from the city’s Taj Mahal Palace and Tower hotel. “In this environment of extreme risk aversion, the bombing probably will give investors a fright,” said Alistair Thompson, who helps manage Asian and global emerging market assets at First State Investments in Singapore. “India was facing challenges anyway with massive amounts of foreign money leaving in droves.” To contact the reporter on this story: Pooja Thakur in Mumbai at pthakur@bloomberg.net; Chen Shiyin in Singapore at schen37@bloomberg.net.

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