RPT-Indian sugar mill stocks surge on new ethanol rules

(Repeats to remove extraneous word in 9th parargraph)

By Biman Mukherji

NEW DELHI, Oct 10 (Reuters) - Indian sugar stocks surged by up to 12 percent on Wednesday after the government set new rules for producing ethanol and blending it with petrol, offering sick mills saddled with bulging supplies a further lifeline.

On Tuesday, ministers allowed firms to manufacture ethanol directly from sugarcane juice, rather than from molasses, made 5 percent blending mandatory from this month and gave states the option to double it to 10 percent.

Mandatory 10 percent blending will come into effect from October 2008, the finance minister said.

Stocks of sugar companies, including Bajaj Hindusthan (BJHN.BO), Balrampur Chini Mills (BACH.BO) and Triveni Sugar (TREI.BO), were up by 10-12 percent at 0845 GMT in a firm Mumbai market that hit another record high in morning trade.

Industry officials said ethanol capacity was not a problem but energy retailers had been slow to adopt the green fuel.

"These are moves to give flexibility in ethanol production," said Ravi Gupta, president of Bajaj Hindusthan, India's biggest sugar producer.

"India can easily meet the five percent norm. It is even capable of meeting the 10 percent blending norm," he added.