Indian shares rise, rupee gains after sharp fall

* Shares up 1.3 percent in early trade

* Bond yields rise on supply concerns

MUMBAI, July 7 - Indian shares recouped some losses on Tuesday after they fell the most in six months in the previous session and the rupee gained in tandem, but concerns remained about a large shortfall in the budget.

Bond yields spiked again in anticipation of large supplies after the government announced a record borrowing programme and said the fiscal deficit would widen to 6.8 percent of gross domestic product in 2009/10, its biggest level in 16 years.

The main stock index <.BSESN> rose 1.3 percent in early deals after sliding nearly 6 percent on Monday as the budget belied expectations for market reforms.

"We foresee limited signs of significant structural reforms being announced in the next one to three quarters as political economy considerations remain at the forefront," said Sailesh Jha, senior regional economist at Barclays Capital.

The rupee climbed after falling the most in three months in the previous session.

At 10:02 a.m. (0432 GMT), the partially convertible rupee <INR=IN> was at 48.27/28 per dollar, compared with Monday's 48.56/59, its lowest close in more than one week.

"The rupee has gained after seeing the finer prints of the budget," said V. Kumar, chief dealer with State Bank of Travancore.

"For now 47.70 is a good support technically and buy dips would be the strategy," he said.

Bond yields, which rose the most in three months on Monday, climbed further after the government announced a large bond supply for this week.

The benchmark 10-year bond <IN060519AG=CC> yield was trading at 7.08 percent, compared with Monday's close of 7.03 percent.

After the market had shut on Monday, the central bank said it would auction 150 billion rupees ($3.1 billion) of bonds on Friday, nearly two times the amount indicated in the tentative calendar. [ID:nMBI003350]