MUMBAI - Indian shares surged 5.94 percent Wednesday after the government won a parliamentary confidence vote, boosting its economic reform agenda, dealers said.
The government's win averted snap elections and allows it to push on with implementing a nuclear energy deal with the United States that had been opposed by left-wing and communist parties.
The benchmark Mumbai 30-share Sensex index rose 838.08 points or 5.94 percent to 14,942.28, its fifth straight day of gains.
"The market was euphoric," said Rupa Rege Nitsure, the chief economist with Bank of Baroda. "They expect more flexibility for the government to push forward their economic reform plans."
Prime Minister Manmohan Singh won the backing of 275 deputies against 256 who opposed his Congress-led ruling coalition in the vote on Tuesday.
Those against were mainly left-wingers, who triggered the vote by withdrawing support for the coalition earlier this month, and the main opposition Hindu nationalists.
The Sensex has now risen nearly 19 percent in the past five days, closing at a one-month high.
But they are still nearly 30 percent from the year's highs as overseas funds have sold 6.84 billion dollars worth of Indian equities this year.
Still, traders see the government's survival as increasing the chances of reforms.
"Reforms had come to a standstill," Nitsure said, adding that now it appeared "non-legislative reforms like divestment of stakes in state-run companies can go through."
The pace of India's economic reforms had slowed as relations between Congress and a bloc of left-wing and communist partners soured over the nuclear deal, threatening the stability of the government.
Nevertheless, economists said rising inflation, oil prices and monetary policy tightening will dictate near-term market trends.
India's central bank is expected to hike short-term lending rates by 25 basis points when it meets next Tuesday.
"Oil and inflation are big concerns. We expect this short rally to lose steam unless oil prices ease further," said Atul Mehra, head of capital markets with brokerage J M Financial.
Gainers led losers 2,270 to 436 on volume of 65.2 billion rupees (1.54 billion dollars).
The rupee rose against the dollar at 42.33 from 42.71 and also against the euro to 66.75 from 68.02.
Banking, infrastructure and power stocks rose.
India's second biggest mobile phone company Reliance Communications rose 57.1 rupees or 12.2 percent to 525.25, while engineering multinational Larsen and Toubro rose 194.9 rupees or 7.58 percent to 2,766.65.
India's largest bank State Bank of India rose 146.1 rupees or 10.45 percent to 1,543.8.