India's main stock index shrugged off a shaky start and rallied 2 percent on Friday, to post its first weekly rise in four, as domestic funds bought into blue chips with earnings potential such as Reliance Industries. Traders said sentiment was boosted by higher European shares that rode a rally in drug makers and U.S. stock futures pointed to a higher opening. Reliance Industries, which has the heaviest weight in the main index, rose 4.5 percent to 1,325.20 rupees, its highest close in nearly four weeks. The energy giant is expected to start gas sales in the second half of February from its large field off India's east coast. 'Institutions are consolidating their holdings in large caps where there is clarity of earnings,' said Deven Choksey, chief executive at brokerage K.R. Choksey. The 30-share BSE index rose 2.04 percent, or 187.96 points, to 9,424.24, its highest close since Jan. 7, with 25 components rising. It rose 8.4 percent on the week, but fell 2.3 percent in January as investors reacted to mostly lower earnings growth. The benchmark had lost 52.45 percent in 2008, its worst year ever, as the global financial turmoil took a heavy toll with foreigners pulling out more than $13 billion from Indian stocks. The withdrawals have continued in January with an outflow of about $1.1 billion as global investors dumped risky assets and sought the safety of bonds. Data showed foreign funds moved about $200 million into Indian debt in January. India's benchmark 2018 bond yield climbed to seven-week highs of 6.31 percent late on Friday. It has risen 106 basis points this month on heavy government borrowing to fund its economic stimulus plans. The yield had fallen 254 basis points in 2008. Traders said domestic funds bought into State Bank of India , Larsen & Toubro, ITC and Oil and Natural Gas Corp. Engineering conglomerate Larsen rose 4.4 percent to 689.20 rupees, its highest close since Jan. 20, after posting higher-than-expected quarterly earnings. Aluminium maker Hindalco Industries rallied 6.5 percent to 49.05 rupees after beating forecast with a marginal rise in quarterly net profit. Suzlon Energy, the world's fifth-largest wind turbine maker, rebounded 5.9 percent to 47.30 rupees after it said it was negotiating for 2,000 megawatts of orders that could double its order book. The stock initially fell 5.9 percent after the company posted a consolidated loss for the December quarter. In the broader market, 1,378 gainers led 1,022 losers on heavy volume of 314.8 million shares. The 50-share Nifty ended 1.8 percent higher at 2,874.80 points. STOCKS THAT MOVED * State-run explorer Oil and Natural Gas Corp climbed 3 percent to 658.20 rupees after its chairman said he expected March quarter results to be better as the firm had met its entire fiscal year subsidy target in the first nine months. * State-run power equipment maker Bharat Heavy Electricals Ltd fell 2.6 percent to 1,320.45 rupees after posting just a 2.5 percent rise in quarterly net profit disappointing the street, traders said. * Kilburn Engineering Ltd jumped by its daily limit of 10 percent to 20.90 rupees after its board approved a share buyback worth up to 31.17 million rupees at an offer price of up to 40 rupees a share. * Construction firm JMC Projects India Ltd rose 9.7 percent to 53.35 rupees after it said it would raise 400 million rupees via a rights issue. * Bartronics India Ltd gained 7.1 percent to 74.30 rupees after its consolidated December quarter net profit doubled. * Akruti City Ltd fell 6.6 percent to 816.80 rupees after reporting a 79 percent fall in December quarter net profit. MAIN TOP THREE BY VOLUME * Satyam Computer on 37.3 million shares * Unitech on 22.5 million shares * Suzlon Energy on 18.4 million shares FACTORS TO WATCH * Indian rupee pares losses as stocks rise 1 pct * Indian bond yields up ahead of debt auction * Risk wary investors favour yen, dlr ahead of U.S. GDP * Oil edges firmer but grim economic outlook nags * World stocks under pressure; yen firms * U.S. shares set to rise; GDP figures eyed * For closing rates of Indian ADRs (Editing by Ranjit Gangadharan) ASIA-PACIFIC STOCK MARKETS: Pan-Asia........ Japan....... S.Korea... S.E. Asia....... Hong Kong... Taiwan.... Australia/NZ.... India....... China..... OTHER MARKETS: Wall Street .... Gold ....... Currency.. Eurostocks..... Oil ........ JP bonds... ADR Report ..... LME metals. US bonds.. Stocks News US.. Stocks News Europe DIARIES & DATA: Indian Data Watch Asia earnings diary U.S. earnings diary European diary Indian diary Wall Street Week Ahead Eurostocks Week Ahead Upcoming IPOs TOP NEWS: For top Asian company news, double click on: U.S. company news European company news Forex news Global Economy news Technology news Telecoms news Media news Banking news Politics/General news Asia Macro data A multimedia version of Reuters Top News is available at: http://topnews.session.rservices.com LIVE PRICES & DATA: World Stocks Currency rates Dow Jones/NASDAQ Nikkei FTSE 100 Debt Indian rupee LME price overview Keywords: INDIA STOCKS/

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