Indian shares drop 0.9 pct; banks, Tata Steel fall

* Investors take profits after rise this month

* Factory output grows faster than expected in Sept

* Tata Steel falls on securities swap plan

* Infosys gains as BPO arm acquires U.S. firm
(Updates to close)

By Ami Shah

MUMBAI, Nov 12 (Reuters) - Indian shares shed 0.9 percent
on Thursday as investors locked in profits in stocks such as
State Bank of India (SBI.BO) and ICICI Bank (ICBK.BO) that had
rallied this month.

The tone was set by a pull back in Asian markets and signs
of fatigue after a rally this year. A faster-than-expected 9.1
percent rise in India's industrial output INIP=ECI in
September from a year ago also failed to lift the market.
[ID:nDEL002343]

"The market had moved up in anticipation of good news. So,
with evidence coming in that recovery is on track, early
investors are booking profits," said A.V. Srikanth, executive
director of private wealth management at Anand Rathi Financial
Services.

The 30-share BSE index closed down 0.91 percent,
or 153.57 points, at 16,696.03, after rising 2.5 percent on
Wednesday. Seventeen of its components declined.

The benchmark is up 5 percent this month after it shed 7.2
percent in October, when it had registered its worst monthly
fall.

"The volatility we are seeing is a tussle between people
who have come in earlier and are wanting to book profits and
those who missed the rally earlier and are trying to enter
now," Srikanth said.

For the year so far, the index is up 73 percent, powered by
foreign fund inflows of $14.6 billion.

Tata Steel (TISC.BO) fell as much as 3.5 percent after the
company approved a new convertible bonds offer in exchange for
an existing $875 million securities and lowered the share
conversion price to 605.53 rupees from from 733 rupees.
[ID:nBOM293627]

"I think the company was not confident of its stock
reaching that price, which means it would face a big redemption
in a single year," said Pawan Burde, sector analyst at
Mumbai-based PINC Research.

"This probably reflects their concerns over growth amid the
downturn in the global steel industry," he said.

The stock closed 2.8 percent lower at 511.85 rupees.

State Bank closed 3.5 percent lower at 2,295.90 rupees
while ICICI and HDFC Bank shed 3.2 percent and 1.1 percent
respectively.

"The near-term outlook for banks is uncertain," Srikanth
said. "For banks, credit growth is yet to revive; treasury
gains may not stay and higher provisioning may hit profits for
1-2 quarters."

The sector index .BSEBANK closed 2.5 percent lower, but
is up 8.5 percent this month.

Infosys Technologies (INFY.BO) rose 0.6 percent to 2,322.70
rupees after its business process outsourcing arm said it
agreed to acquire U.S.-based McCamish Systems. [ID:nBMA006412]

"IT stocks look good with hiring plans picking up, demand
outlook improving and on earnings visibility," said Mehul
Dedhia, assistant vice-president of sales at brokerage
Sharekhan.

Sector leader Tata Consultancy and smaller rival Wipro
(WIPR.BO) gained 1.4 percent each.

In the broader market, losers outpaced gainers in a ratio
of 1.2:1 on relatively higher volume of 516 million shares.

The 50-share NSE index closed 1 percent lower at
4,952.65.

STOCKS THAT MOVED

* Wind turbine maker Suzlon Energy (SUZL.BO) rose 2.4
percent to 69.35 rupees after it was added to the MSCI India
index. [ID:nN11332167]

* Drug maker Glenmark Pharmaceuticals (GLEN.BO) and Power
Grid Corp (PGRD.BO) shed 3.8 percent and 1.6 percent
respectively, as they were removed from the MSCI India index.

* Indiabulls Real Estate (INRL.BO) dropped 1.8 percent to
239.20 rupees after about 16 percent of its equity changed
hands on the Bombay Stock Exchange. [ID:nBMB009066]

MAIN TOP 3 BY VOLUME

* Indiabulls Real Estate on 68 million shares

* Suzlon Energy on 20.2 million shares

* Mahindra Satyam (SATY.BO) on 13.3 million shares

FACTORS TO WATCH
* For technical analysis double click on www.reutersindia.net
* India rupee report
[INR/]
* India bond report
[IN/]
* Dollar flat; buffeted by Asia talk, consolidation
[FRX/]
* Oil falls below $79; U.S. inventory in focus
[O/R]
* Gold at new record on wobbly dollar, stocks weak
[MKTS/GLOB]
* US stock futures signal dip; Wal-Mart results eyed
[.N]
* For closing rates of Indian ADRs
INADR
(Additional reporting by Prashant Mehra; Editing by Ranjit
Gangadharan)