* Sensex drops 0.95 pct; still up 14.5 pct in 2012
* ICICI Bank, Larsen and Toubro fall more than 2 pct
* Maruti Suzuki climbs 4.8 pct after Feb sales rise (Adds comments, updates to close)
By Kaustubh Kulkarni
MUMBAI, March 1 (Reuters) - Indian shares fell nearly 1 percent on Thursday, with ICICI Bank and engineering conglomerate Larsen & Toubro leading the drop, as investors took profits after a two-month rally.
State-run Oil and Natural Gas Corp shed 1.7 percent after a government share sale in the country's largest oil producer received bids for only about two-thirds the shares on offer, television channels said.
Exchange data was not clear on the final amount of bids, and bankers and officials at the Department of Disinvestment were not available.
The stock closed at 288.20 rupees, below the floor price of 290. The government had aimed to raise at least $2.5 billion through the sale of a 5 percent stake.
Tata Communications, which owns undersea cable assets and provides telecoms and Internet services to companies across countries, rose 1.1 percent after the company said it was evaluating a potential bid for Britain's Cable & Wireless Worldwide Plc.
The main 30-share BSE index closed down 0.95 percent, or 168.71 points, at 17,583.97, with 24 of its components in the red.
ICICI Bank shed 2.5 percent and bigger rival State Bank of India dropped 1.3 percent, as investors took profits.
The banking sector index has risen nearly 31 percent since the end of 2011, about double the gain in the BSE index over the same period, on expectation interest rates would be cut to help slowing growth.
"We are advising investors not to over indulge in equities," said Samir Gilani, head of equities at Mape Securities. "Growth is going down and there are no indication when the monetary easing will actually come in."
India's economy grew at the slowest pace in almost three years in the December quarter as high interest rates and rising input costs hurt investment and manufacturing.
Larsen & Toubro dropped 2.3 percent, falling for a second day, after the company missed out on a 160-billion-rupee bulk tender by utility NTPC.
The company's bid, along with its joint venture partner Japan's Mitsubishi Heavy Industries, was the third lowest for the order.
"...This would be viewed in general as a negative for L&T's power equipment joint venture with Mitsubishi," brokerage Nomura said in a note.
Leading utility vehicle maker Mahindra and Mahindra dropped 4 percent after its February sales fell 3.6 percent from January, although they were up 29 percent from the same month a year earlier.
Maruti Suzuki, the country's biggest car maker, bucked the trend and rallied 4.8 percent after its February sales rose 6.5 percent from a year ago.
DLF Ltd, India's largest listed developer, closed down 5.5 percent at 214.05 rupees after Canadian investment research firm Veritas recommended selling the stock, saying the share was worth 100 rupees.
The 50-share NSE index fell 0.84 percent to 5,339.75. In the broader market, there were 1.5 losers for every gainer on volume of 863.35 million shares.
The MSCI's measure of Asian markets other than Japan was down 1 percent, while Japan's Nikkei fell 0.2 percent.
STOCKS THAT MOVED
* Ambuja Cements rose 2.2 percent after its February shipments grew 12.7 percent.
* Steel Strips Wheels firmed 2 percent after its February sales increased 34 percent.
* Glenmark Pharmaceuticals rose 0.4 percent after the drugmaker received U.S. drug regulator's approval to sell an oral contraceptive tablet and a skin treatment gel in the United States.
TOP THREE BY VOLUME
* Suzlon Energy on 87.8 million shares
* Lanco Infratech on 52.5 million shares
* IFCI on 50.3 million shares
FACTORS TO WATCH * Indian rupee report * Indian bond report * Euro weak on profit-taking, dollar recovers * Oil above $123 on economy hopes, Iran concern * Euro, shares weaker after Fed hints * U.S. stock futures point to steady Wall St open * Foreign institutional investor flows * For closing rates of Indian ADRs (Editing by Ranjit Gangadharan)
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