India stocks dive on interest rate concerns

MUMBAI, January 7, 2011 (AFP) – Indian stocks slumped for the fourth day running on Friday, shedding 2.44 percent on mounting fears that interest rates will be raised sooner than expected to curb the spiralling cost of food. The benchmark 30-share Sensex index ended 492.93 points lower at 19,691.81, a three-week low.

Surging vegetable prices, including the key staples of onions and tomatoes, pushed up food price inflation to a five-month high 18.32 percent for the week ended December 25, government figures show.

Onions have been hit by unseasonal monsoon rains, forcing India to look to its neighbour and long-term rival Pakistan to help meet demand, amid talk that the central bank may act on rates to tame inflationary pressures.

“Investors fear that the RBI (Reserve Bank of India) may increase rates quickly to stem spiralling inflation,” said Bhaskar Kapadia, a partner with Mumbai brokerage Pyramid Securities.

The RBI, which has already raised interest rates six times in 2010, was already widely expected to hike rates 25 basis points at its quarterly monetary policy meeting on January 25.

On the Sensex, rate-sensitive auto, banking and metal stocks fell.

The country’s leading vehicle make