Indian shares fall on S&P warning

* BSE ends 0.86 pct lower; NSE falls 0.92 pct

* S&P says India still faces risk of rating downgrade

* India FY13 car sales growth f'cast slashed to 1-3 pct

By Manoj Dharra

MUMBAI, Oct 10 (Reuters) - Indian shares ended lower onWednesday, led by profit-taking in banking stocks, after ratingagency Standard & Poor's warned the country still faces a threatof a rating cut despite recent reforms.

S&P said the recent reform steps initiated by the governmenthad helped in "slightly" revising its view on the country'scredit rating, but warned India still faced a one-in-threechance of a credit rating downgrade within the next 24 months.

European shares fell for the third day running as economicanxiety was compounded by stuttering progress in the euro zone'sbattle against its debt crisis.

Dealers are looking forward to October quarter earningsthat begin later this week when information technology companyInfosys

and private sector bank HDFC Bank

report their second-quarter results. Investors and analysts willclosely watch the management commentary for further action.

"This earnings (season) will be the last quarter withsubdued earnings. Come next quarter, all the decisions taken bythe government will be reflected," said Jagannadham Thunuguntla,head of research at SMC Investments and Advisors Ltd.

"Lot of positive (effects) will start showing form the nextquarter. Hopefully, if there is an interest rate cut by the RBI,that will show up as well and strengthening of the rupee willalso get reflected."

The BSE indexfell 0.86 percent, or 162.26 points,to end at 18,631.10 points.The 50-share NSE index

lost 0.92 percent, or 52.45points, to end at 5,652.15 points, closing below thepsychologically important 5,700 level.

However, if the Nifty goes below the 5,650 level, thenear-term trend may turn to be bearish, and further sellingpressure may be seen. Industrial data on Friday and Monday'sinflation data will impact the near-term market trend.

Indian inflation probably accelerated to its highest levelthis year in September because of costlier fuel after thegovernment cut subsidies, according to a Reuters poll,complicating the task of the central bank as it faces pressureto ease monetary policy to revive growth.

ICICI Bank ended 0.9 percent lower, while HDFC Bank fell1.25 percent and State Bank of India

closed 2.6 percentlower.

India's car sales are seen growing just 1 percent to 3percent in the current financial year, an industry body said,slashing its previous estimates as high interest rates andslowing economic growth continue to stifle a once-boomingindustry.

Mahindra & Mahindrafell 2 percent, Maruti Suzukilost 1 percent.

Shares in Jaiprakash Associates

ended up 2.5percent. The company has renewed talks with AdityaBirla-controlled UltraTech Cement

and Switzerland'sHolcim Ltd

to sell its cement plant in the westernstate of Gujarat to pare its debt, a source with directknowledge of the matter said.

Irish building materials group CRH Plc

said onTuesday it has ended talks with Jaiprakash, the cement-to-powerconglomerate, to buy an equity stake in the plant.

Blue-chip capital goods stocks were also hit byprofit-taking. Larsen & Toubroclosed 1 percent lower,while BHELlost 2.04 percent.Telecom shares extended fall over airwave surchargeconcerns. Bharti Airtelfell 1.23 percent, while IDEAdeclined 2.6 percent.

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* For closing rates of Indian ADRs

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(Additional Reporting by Aditi Shah Editing by Subhranshu Sahu)

((manoj.dharra.reuters.com@reuters.net)(+91 22 61807243))