* A second economic package expected later on Friday * Financials rise on hopes for interest rate cuts * DLF, mortgage firm HDFC up on realty incentive hopes * Outlook cautious on likely gloomy corporate earnings (Updates to close) By Sumeet Chatterjee BANGALORE, Jan 2 (Reuters) - Indian shares rose 0.6 percent to their highest close in two weeks on Friday as investors awaited a government incentive package and rate cuts to prop up sagging economic growth. The government is likely to announce a second fiscal stimulus plan later in the day, two officials in the prime minister's office in New Delhi said, to help revive the $1 trillion economy which is slowing faster than expected. [ID:nDEL387927] Financials such as top lender State Bank of India (SBI.BO) gained 1.1 percent to 1,330 rupees, while rival ICICI Bank (ICBK.BO) climbed 1.5 percent to 471.20 rupees on hopes a rate cut would boost demand for loans. The banking sector index .BSEBANK rose 1.6 percent. However, worries about falling earnings growth at companies remained a concern and there were doubts about how much government support could salvage the market from the global slowdown. "The package will be nothing more than a steroid for the short term as world over these boosters have not been able to hold up the markets for long," said Daljit Kohli, head of research at Emkay Global Financial. The main 30-share BSE index firmed 0.55 percent, or 54.76 points, to 9,958.22, its highest close since Dec. 19. It opened up 0.9 and then fell 0.4 percent during trade before rebounding as much as 1.7 percent. Eighteen of its components gained. The benchmark climbed 6.7 percent on the week, its third rise in the last four weeks. "Investors should not make fresh commitments at these levels," Kohli said. "I am expecting a major dip before the market stages a sustainable recovery." Authorities had cut policy rates, announced $4 billion in extra spending and rolled out a four-percentage point cut in factory gate duties in December, but these failed to lift the market. The BSE index fell 52.4 percent in 2008, its worst performance ever, as the global financial crisis and a spending squeeze at home took their toll. Brokerage India Infoline said in a report an economic stimulus package and the central bank's "pump-priming efforts" might provide a temporary filip to the markets, but there were doubts about sustainability of any rally. Expectations for monetary easing rose after data on Thursday showed inflation fell to a near 10-month low in the third week of December, while exports dipped again. [ID:nDEL402957] "The expectations are too much in the market about the fiscal policy and if those expectations are not met then we can see a serious fall in the market," said Neeraj Dewan, director at Quantum Securities. In the broader market, two stocks rose for every one that fell on heavy volume of 457 million shares. "The conviction in the market is still very low and I believe there will be strong resistance at these levels," Dewan said. "One has to be very cautious in the near term because we may see some shocks in the corporate earnings." Software bellwether Infosys Technologies (INFY.BO), which kicks off the earnings parade on Jan. 13, fell 1.4 percent to 1,130.95 rupees. Outsourcers get most of their revenue from the United States where a recession has hit demand. Shares in energy group Reliance Industries (RELI.BO) rose 2.4 percent to 1,283.90 rupees as investors saw value in the stock that had fallen 57.3 percent in 2008, traders said. After the mauling last year when foreign funds pulled out $13.3 billion, the outlook for 2009 is tempered. "We have seen the worst kind of volatility last year, which we may not see in 2009," said K.K. Mital, head of portfolio management services at Globe Capital, adding the near-term sentiment will be directed by the quarterly corporate earnings. Shares in developers and mortgage companies climbed as traders bet on incentives for the crumbling real estate sector in the government's economic stimulus package. [ID:nDEL183578] Top listed realty DLF Ltd (DLF.BO) rose 3 percent to 300.60 rupees, Unitech (UNTE.BO) ended 4.3 percent higher at 46.40 rupees, while top mortgage lender Housing Development Finance Corp (HDFC.BO) climbed 2.7 percent to 1,544.95 rupees. The broader 50-share NSE index closed up 0.44 percent at 3,046.75. STOCKS THAT MOVED * Suzlon Energy (SUZL.BO) ended down 2.6 percent at 64.55 rupees, having risen 7 percent during trade after the wind turbine maker said it had sold a 10 percent holding in Belgium-based wind turbine gearbox maker Hansen to a London investment firm. * Hero Honda Motors (HROH.BO), 26 percent-owned by Japan's Honda Motor (7267.T), dropped 2.5 percent to 792.75 rupees after the top motorbike maker reported a 10 percent drop in bike sales in December. [ID:nBMA002099] MAIN TOP 3 BY VOLUME * Unitech on 33 million shares * Reliance Natural Resources (RENR.BO) on 30 million shares * GVK Power & Infrastructure (GVKP.BO) on 20 million shares FACTORS TO WATCH * Indian rupee off 1-wk lows as shares rise [INR/] * Indian bond yields higher; debt auction eyed [IN/] * FOREX-Dollar firm as late 2008 euro rally fizzles [FRX/] * Oil tumbles 8 pct after late surge capped dismal '08 [O/R] * GLOBAL MARKETS-Shares, dollar rise, sending gold, bonds lower [MKTS/GLOB] * US STOCKS-Wall St closes out worst year since Depression [.N] * For closing rates of Indian ADRs INADR

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