Traders said investors turned wary about financial stocks on concerns heavy government borrowing could harden bond yields and erode profits of banks, who are the biggest buyers of government paper.

State Bank of India Chairman O.P. Bhatt said on Tuesday interest rates could harden in six months as demand for loans picks up.

Shares in State Bank, the country's biggest lender, fell 3 per cent to Rs 1,587 and ICICI Bank dropped 5.8 per cent to 654.55, their lowest close since mid-May.

The bank index fell 4.1 per cent to its worst close since the ruling coalition won a bigger election mandate in May.

"Corporate earnings will be the next driver for the market, in the short term. They are expected to be better than the previous quarter," said Vikas Khemani, co-head institutional equities at Edelweiss Securities.

"But for a longer rally it depends on how the government takes the growth momentum forward."

Outsourcing bellwether Infosys Technologies is expected to report on Friday its quarterly earnings rose 7.3 per cent on year.

Auto stocks got a fillip from the government's focus on the farm sector, which could boost demand for tractors and utility vehicles while increased allocation for urban schemes will help sales of buses, traders said.

Top truck and bus leader Tata Motors climed 0.5 per cent to Rs 281.15, No. 1 car producer Maruti Suzuki rose 2.1 per cent to Rs 1,102.95 and top motorcycle maker Hero Honda Motors firmed 1.5 per cent to Rs 1,459.20.

... contd.