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India shares post worst weekly loss in six weeks amid global equity rout

Sun Pharma, Tata Motors, Mahindra pace declines

MUMBAI (NewsRise) -- Indian shares suffered their biggest weekly decline in six weeks amid a broad selloff in equities worldwide, prompted by a flattening U.S. yield curve.

The BSE Sensex posted a weekly loss of 1.4% and the Nifty 50 declined 1.7%. Sun Pharmaceutical Industries tumbled almost 17% this week amid a media report of various irregularities by the company. Sun's clarification following the report did little to allay investor fears. Tata Motors declined 5.5% after S&P Global Ratings cut the rating on the company and its Jaguar Land Rover unit. Mahindra & Mahindra fell 8.8% after disappointing November automotive sales. JSW Steel and Tata Steel lost at least 3.9% this week amid worried that the recent softness in global steel prices could persist into next year. Citibank on Friday downgraded Tata Steel and JSW Steel to 'sell'.

Global equities had begun the week on a positive note after U.S. and China, at a G-20 summit, agreed to a temporary trade truce. President Donald Trump agreed not to move ahead with a planned increase in tariffs on $200 billion of Chinese imports, and China, in return, agreed to increase the purchase of U.S.-made agricultural, industrial, and energy goods.

However, the mood thereafter turned sour following the decline in long-term Treasury yields, which led to the flattening of the yield curve and prompted concerns on the U.S. economic outlook. The S&P 500 Index on Tuesday suffered its biggest decline in about two months after yield differential between 10-year and 2-year U.S. yields fell to multiyear lows of around 10 basis points.

The falling yield differential between long-end and short-tenure U.S. bonds is considered a signal of bond traders pricing in an economic slowdown.

"The slump in 10-year/2-year Treasury yield spread has reignited the debate about what, if anything, the yield curve tells us about the prospects for the US economy," Capital Economics said in a note. "It usually happens when investors start to worry about the outlook for the economy in the next couple of years."

The appetite for equities was further marred by the arrest of the Chief Financial Officer of Huawei by Canadian authorities, possibly for extradition to the U.S. The arrest, coming just days after the trade truce between Beijing and Washington, raised fears among investors of a pushback from China.

On Friday, the Sensex advanced 1% to 35,673.25 and the Nifty 50 rose 0.9% to 10,693.70, helping trim the weekly losses. The rebound came amid a decline in crude oil prices, which helped the rupee strengthen to near 70.50 to a dollar.

Kotak Mahindra Bank jumped 8.5% on Friday amid a report by CNBC TV-18 that Warren Buffet's Berkshire Hathaway is in talks to buy a 10% stake in the lender through a preferential share allotment. The report said the deal could value the private lender between $4 billion and $6 billion. The lender, in a clarification to the stock exchanges said it is unaware of Berkshire Hathaway's plans of buying a stake in the bank.

HCL Technologies fell 5%. The company said earlier Friday that it will acquire select IBM software products for $1.8 billion.

State-run Power Finance edged 0.5% lower. India's federal cabinet late Thursday said it approved the company's plan to acquire the government's 52.63% stake in rival power sector financer REC. Shares of REC ended 0.7% higher.

Dilip Buildcon advanced 4.3% after the construction company secured a contract from state-run Coal India's unit Mahanadi Coalfield.

--Nimesh Vora

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