Aug. 30 (Bloomberg) -- India's economic growth probably cooled last quarter as the highest interest rates in five years curbed demand for Ford Motor Co. cars and new homes.

South Asia's largest economy expanded 9 percent in the three months to June 30 from a year earlier, down from a 9.1 percent gain in the previous quarter, according to the median forecast of 18 analysts in a Bloomberg News survey. The figures are due tomorrow around noon in New Delhi.

India will still be the second-fastest growing major economy after China. India's expansion is being fueled mainly by rising demand from its 1.1 billion people, shielding it from any global slowdown caused by the U.S. housing-loan crisis.

``India's structural growth story remains intact,'' said Tushar Poddar, an economist at Goldman Sachs Group Inc. in Mumbai. ``India's global linkages are much weaker than other emerging economies. It is difficult to see any major impact of a sub-prime induced U.S. slowdown on India.''

Goldman's Poddar estimates a one percent drop in the pace of economic growth in the U.S. will shave only 0.25 percentage point from India's expansion.

The estimated growth in India last quarter compares with a gain of 1.8 percent in the U.S, 2.5 percent in the countries that share the euro, and 2.3 percent in Japan. China's economy expanded 11.9 percent.

The Reserve Bank of India has raised rates by 2.25 percentage points since Oct. 2004 to tame loan growth and contain inflation to below 5 percent. It also allowed the rupee to gain to a near nine-year high to make imports cheaper. The monetary steps combined with import-tax cuts have kept inflation below the central bank ceiling since June.

Growth `Moderating'

``India's economy is moderating mainly because of the rise in local borrowing costs, which is hurting industries such as automobiles and mortgages,'' said Shuchita Mehta, a senior economist at Standard Chartered Bank in Mumbai. ``The sudden appreciation in the rupee has also hurt exports.''

Higher interest rates are harming companies such as Hero Honda Motors Ltd., the nation's biggest motorcycle maker. Hero Honda and Bajaj Auto Ltd., India's top motorcycle makers, announced production cuts in June and posted declines in sales in July. Ford, the second-largest U.S. automaker, suffered a 10.5 percent decline in sales in India in the first four months of the financial year ending July from a year earlier.

Growth in bank loans slowed to 23.4 percent in the year to Aug. 3 from 31 percent in the same period in the previous year, according to the central bank data. Services such as banking, telecommunications and software, make up 55 percent of India's economy. Industry represents a quarter and farming accounts for the remainder.

Stronger Currency

The 7.5 percent gain in the rupee since January curbed earnings at the country's largest software makers such as Wipro Ltd., which last quarter posted the slowest profit growth in more than two years.

The Reserve Bank expects economic growth will slow to around 8.5 percent in the year to March 31 from 9.4 percent in the previous year.

Still, rising incomes and an estimated addition of 150 million people to the labor force in the next 10 years will contribute to an average 8 percent growth in India until 2020, the finance ministry estimates.

Incomes in urban areas are for example rising as SAP AG, the world's largest maker of business-management software, and rivals such as Oracle Corp. increased hiring to benefit from technically-skilled workers and lower wage bills. India has SAP's third-largest workforce after Germany and the U.S.

New Jobs

India generated 11.3 million new jobs annually between 2000 and 2005, which is over 60 percent more than the 7 million fresh jobs created in China every year, according to the Organization for Economic Cooperation and Development. Foreign direct investments doubled to about $15 billion last year.

``The Indian market is sitting at a stage to just take off,'' said Pranay Dhabhai, chief operating officer at Haier Appliances (India) Ltd., the local unit of China's biggest home appliances maker. ``It is a situation that China was in 1995.''

Haier, which opened its first factory in India this month, estimates that only 19.6 percent of Indian households have refrigerators, 27 percent of households own television sets and just 3 percent of homes have air-conditioners installed.

Expectations that India's market for consumer goods is about to surge comes amid investor concern that the government of Prime Minister Manmohan Singh may be forced to call early elections because of differences with its main ally, the communists, over a nuclear deal with the U.S.

The deal aims to end nuclear sanctions against India, which Singh says is vital to secure the nation's energy needs. The communist parties say the pact weakens India's foreign policy.

``Turning points in India's political cycles usually result in short-term volatility in financial markets,'' said Rajeev Malik, senior economist at JPMorgan Chase & Co. in Singapore. ``But sentiment is quick to recover and political volatility does not have a lasting impact.''

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                                 GDP YoY%
Company                           Apr-Jun
-------------------------------------------
Median                             8.95%
Average                            8.93%
High                               9.50%
Low                                8.20%
Number of Estimates                 18
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Action Economics                   9.50%
Anand Rathi Securities             9.30%
ANZ Banking Group                  8.90%
CARE                               9.10%
Deutsche Bank                      8.20%
Edelweiss Securities               9.00%
Forecast Singapore                 8.90%
HSBC                               8.80%
ICICI Securities                   8.50%
IDBI Gilts Ltd.                    8.80%
ING Vysya Bank                     8.50%
JPMorgan Chase Bank                8.50%
Lehman Brothers                    9.00%
Lombard Street Research            9.30%
Standard Chartered Bank            8.50%
STCI Primary Dealer Ltd.           9.40%
Thomson IFR                        9.40%
Yes Bank                           9.20%
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To contact the reporter on this story: Cherian Thomas in New Delhi at cthomas1@bloomberg.net

Last Updated: August 29, 2007 14:31 EDT