Aug. 5 (Bloomberg) -- India's Sensitive Index rose to its highest in six weeks, led by banks, on optimism falling energy prices will narrow the country's fiscal deficit and ease pressure on the central bank to raise rates.

ICICI Bank Ltd., the country's second-largest lender by assets, rose the most since July 23, while State Bank of India, the biggest, climbed to its highest since May 22. DLF Ltd., India's No. 1 developer, rose to its highest in two months. Mahindra & Mahindra Ltd., the nation's largest tractor maker, gained the most in more than six months.

``Interest-rate sensitive sectors including banks, automobiles and real estate are up on hopes lower oil prices will improve the fiscal deficit,'' said Ajay Bodke, who helps manage about $1 billion in Indian equities at IDFC Asset Management Co. ``Oil prices dropping below $120 is very positive for our markets.''

The Bombay Stock Exchange's Sensitive Index, or Sensex, added 383.20, or 2.6 percent, to 14,961.07, its highest since June 19. The S&P CNX Nifty Index on the National Stock Exchange climbed 107.50, or 2.5 percent, to 4,520.85.

Crude oil for September delivery fell 1.7 percent to $119.32 a barrel in electronic trading on the New York Mercantile Exchange at 3:13 p.m. Mumbai time. Earlier, it dropped to $118 a barrel, its lowest intraday price since May 5.

Deficit

India's current-account deficit, which includes trade and investment flows, widened to a record $17.4 billion in the financial year ended March 31, from $9.8 billion in the previous 12 months, partly because of increased spending to keep fuel prices below international levels.

The deficit is the amount the government needs to borrow to bridge the difference between spending and receipts. A narrower budget gap may lead to lower government borrowing in Asia's third-largest economy, allowing reductions in interest rates.

ICICI added 8.4 percent to 694.10 rupees. State Bank gained 4.5 percent to 1,578.40 rupees. HDFC Bank Ltd. climbed 6.8 percent to 1,184.50 rupees. Mahindra rose 6 percent to 551.45 rupees while DLF climbed 7.3 percent to 552.10 rupees.

Overseas investors sold a net 3.42 billion rupees ($85 million) of Indian equities on Aug. 1, boosting their net outflow this year from stocks to $6.7 billion, according to the nation's stock market regulator.

Tata Steel Ltd. (TATA IN), India's largest maker of the alloy, slid 15.65 rupees, or 2.3 percent, to 675.90. The Taipei- based Commercial Times said demand for steel in China will probably drop this year as the property market cools, Taipei- based Commercial Times said today, quoting a report from the China Iron and Steel Association.

Refiners: India's state-run refiners rose after crude oil prices slumped to a three-month low. Indian Oil Corp. (IOCL IN), the nation's largest refiner, rose 6.75 rupees, or 1.6 percent, to 433.40. Bharat Petroleum Corp. (BPCL IN), the second-largest state-run refiner, added 8.95 rupees, or 2.7 percent, to 335.60. Hindustan Petroleum Corp. (HPCL IN), the third biggest, climbed 6.1 rupees, or 2.7 percent, to 233.65.

Bharat Heavy Electricals Ltd. (BHEL IN) rose 563.65 rupees, or 3.1 percent, to 1,769.90. India's biggest power equipment maker said it won a 25 billion rupee order to build two steam generators from Andhra Pradesh Power Development Co.

Sesa Goa Ltd. (SESA IN), India's biggest non-state iron-ore exporter, declined 204 rupees, or 5.8 percent, to 3,337.65. India may ask iron-ore miners to sell the raw material, used in making steel, through long-term contracts instead of selling for immediate delivery to help contain inflation, the Economic Times reported today, citing a source it didn't identify.

To contact the reporter on this story: Pooja Thakur in Mumbai at pthakur@bloomberg.net;

Last Updated: August 5, 2008 06:52 EDT