(Corrects syntax in headline and typo in fourth paragraph)
* BSE index gains 0.63 pct, NSE index up 0.68 pct
* Recent underperformers gain
MUMBAI, March 12 (Reuters) - Indian shares rose on Thursday as hopes parliament would pass a bill raising foreign investment limits in the insurance sector raised optimism that other stalled reforms would also be passed and support a recovery in the economy.
Sentiment was also boosted after the International Monetary Fund said India's economy was recovering and its ability to withstand external shocks had improved, although it noted growth is likely to fall short of government targets.
The gains on Thursday snapped a three-session losing streak and analysts said markets could resume gains towards record highs hit early this month should the government be able to pass reforms through an upper house of parliament dominated by the opposition.
"Overall sentiment is good and market is moving in anticipation of positive measures from the government. The recent fall has given a fairly good chance to enter the market," said Suresh Parmar, head, institutional equities at KJMC Capital Markets.
The benchmark BSE index gained 0.63 percent to 28,839.17 points, while the broader NSE index added 0.68 percent to 8,759.40 points.
Insurance companies gained on expectations the upper house of parliament would vote on legislation proposing to increase the foreign investment limit in insurers to 49 percent from 26 percent as early as Thursday.
However, the government faces a tougher battle in passing other legislation including a land reform bill that could face strong opposition in the upper house of parliament.
Max India added 7.4 percent and Reliance Capital gained 6.1 percent
ITC surged 2.8 percent after a CLSA report said the company has raised prices by 10-25 percent across key cigarette brands.
Some recent underperformers such as metals and miners also gained on value-buying after the government said it will impose an anti-dumping duty on stainless steel product imports.
Jindal Stainless advanced 15.5 percent and Tata Steel gained 2.7 percent. (Reporting by Indulal PM; Editing by Sunil Nair)