New Delhi  - India's benchmark indices fell by about 3 per cent Thursday as investors booked profits after India's federal bank announced further interest rate cuts to boost a slowing economy.

Improved weekly inflation figures helped limit the losses, analysts said, with the two main indices ending about 2.5 to 2.9 per cent below their previous close.

India's weekly inflation rate, linked to a wholesale price index, stood at 3.03 per cent in the week ended February 21, its lowest in 14 months, according to official data.

The Bombay Stock Exchange's 30-share Sensex closed at 8,197.92, about 2.94 per cent below its previous close.

The broader 50-share S&P CNX Nifty of the National Stock Exchange ended 2.59 per cent down at 2,576.70.

The main losses were in consumer goods and oil and gas stocks. India's largest privately-owned firm, Reliance Industries, was among the biggest losers.

Aiming at increasing cash flow in the economy, India's federal Reserve Bank of India (RBI) on Wednesday cut short-term lending and borrowing rates by 50 basis points each.

The repo rate, at which the federal bank borrows from banks, now stands at 3.5 per cent, while the reverse repo, or the rate at which it lends to the banks, stands at 5 per cent.

The RBI is hoping the decision will push banks to lend more and spur consumer spending by reducing borrowing costs.

Official data released Friday showed India's economic growth had slowed to 5.3 per cent in the October-to-December 2008 quarter, the slowest quarterly growth in almost six years.

The figure was a substantial decrease from the 8.9-per-cent expansion recorded in the same period the previous year as the global economic crisis cut demand and exports.

The Indian economy has grown at 9 per cent for three consecutive years, but the government recently revised its projected growth rate for fiscal 2008-2009 to 7.1 per cent.

India's financial year runs from April 1 to March 31. (dpa)