Bonds gain, rupee recovers on Economic Survey

MUMBAI (Reuters) - Bonds, shares and the rupee gained on Friday after a key government report on the economy was seen as calling for fiscal prudence and stable inflation, while also acknowledging risks to the growth outlook. The report calmed some of the market fears ahead of the 2016/17 fiscal budget to be unveiled on Monday. Investors have worried India will widen its fiscal deficit targets, in part to raise pay for government employees and bail out banks. The 10-year benchmark bonds yield eased 4 basis points to 7.79 percent from levels before the government released its economic survey. The yield had closed at 7.86 percent on Thursday and had gained earlier after the RBI announced a $1.75 billion bond purchase and said it would not allow bailout debt issued by state governments to boost supply and hurt markets. The rupee recovered to 68.7250 after earlier weakening as much as 68.79 to the dollar, dangerously close to a record low of 68.85 hit in August 2013. The NSE Nifty extended gains to 0.7 percent, with state-owned lenders among the leading gainers. (Reporting by Neha Dasgupta; Editing by Rafael Nam)