India's financial markets dipped sharply when they opened this morning after a one-day closure following the terrorist attacks in the financial capital of Mumbai. Shares and bonds fell on the Mumbai Stock Exchange and the Indian rupee fell almost 1 per cent against the dollar.

Shares in Indian companies responded to the attack on high-profile tourist and business hotels in Bombay in which 121 people lost their lives. Airline stocks tumbled as did shares in hotel groups. The Bombay Stock Exchange's benchmark Sensex index initially fell 1.5 per cent but then recovered some of the losses to close down 0.6 per cent. The benchmark 10-year bond yield rose at first but then fell back to their lowest level for three years as speculation grew that the Indian central bank would cut interest rates to restore confidence following the terrorist attack.

Shares in Jet Airways, the largest domestic carrier and its rival Kingfisher fell by 7 and 10 per cent, respectively. The hotel sector was hit heavily in reponse to the attacks on the Taj Mahal and Oberoi establishments, two landmark hotels in Bombay. Shares in Indian Hotels, which is part of the Tata group and owns the Taj Mahal fell by 13.5 per cent, while EIH which owns the Oberoi fell by 4.5 per cent.

In other sectors, such as information technology, stocks rose. Infosys Technologies, the outsourcer gained 3.2 per cent while Tata Consultancy was up 4 per cent as investors looked for sector likely to be unaffected by the attacks.

More evidence emerged of the slowdown in the Indian economy with the publicatio of government figures showing that India's GDP increased by 7.6 per cent in the third quarter, slightly higher than expected but below the second quarter growth of 7.9 per cent.

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