REUTERS - Indian shares rose on Wednesday, in line with Asian peers as a pause in the global bond rout and rally in the dollar lifted risk sentiment, while cooling retail inflation back home bolstered the chances of a rate cut next month.
Consumer prices rose by an annual 4.20 percent last month in their slowest pace in 14 months, data released after market hours on Tuesday showed, increasing the odds of another rate cut after a 25 basis point reduction last month.
But some analysts reckon an impending interest rate increase in the United States could force a status quo until February.
Uncertainty surrounding the impact of the government's last week move to withdraw higher-denomination bank notes and slow replenishment in new bills, also prevailed.
"The market continues to grapple with the impact of demonetisation. In weeks ahead, we will get a clearer picture on how different sectors react to the withdrawal of high currency notes. The common consensus is that the whole economy will be hit by this monetary shock," said Jay Shankar, chief India economist & director, Religare Capital Market.
"The stabilisation we see today is a reaction to the broader global sentiment, but the recovery is likely to be temporary and we can expect some volatility shortly."
Asian shares won a reprieve from a rally in Wall Street shares as the sell-off in global bonds and sharp gains in the dollar halted.
The Nifty was up 0.51 percent at 8,149.65 as of 0522 GMT after rising as much as 1.25 percent earlier in the session.
The Sensex rose 0.69 percent at 26,477.77 after rising as much as 1.20 percent earlier.
Both the indexes declined about 2 percent on Tuesday.
Shares of Tata Global Beverages, which co-owns and runs Starbucks coffee stores across India, rose as much as 7.1 percent.
The company on Tuesday announced the removal of Cyrus Mistry as its chairman, the first Tata group company to depose him since his removal last month from the helm of parent holding company Tata Sons.
(Reporting by Samantha Kareen Nair in Bengaluru; Editing by Subhranshu Sahu)