MUMBAI: Indian shares fell 4.2 per cent on Thursday, taking their losses to 15 per cent in two weeks, as record oil prices above $145 a barrel intensified inflation expectations and possibly tighter monetary policy.

No 2 mobile operator Reliance Communications tumbled 6.9 per cent to Rs389.50, its lowest close in nearly 16 months, on concerns a family feud could scupper a multi-billion dollar deal with South Africa’s MTN.

Shares in the firm have fallen a third since late May when it began talks with MTN to create a global top-10 telecoms firm. Financial stocks dropped as rising interest rates were likely to slow down demand for loans and increase defaults by customers, while falling bond prices would erode the value of bank investment and result in higher provisioning.

“There is a fear in the market the repo rate may be hiked further,” said Gopal Agarwal, head of equity at the Indian fund unit of Mira Asset, referring to the central bank’s key short-term lending rate.

Last month, the central bank had raised its key repo rate twice by a total of 75 basis points to rein in galloping inflation. Traders said political concerns also kept investors edgy, with the government wooing a regional party for support if the communists withdrew their fifth time in six sessions, as the dollar fell on a gloomy US jobs data, while a higher that expected fall in US crude stocks raised supply concerns.

India’s economic growth in 2008/09 is expected at 7.6 per cent, lower than previously expected, pulled down by high inflation, the central bank’s tight policy and record oil prices, a quarterly Reuters poll showed. Annual inflation, running at a 13-year high of 11.4 per cent in mid-June, could quicken if a nationwide truckers strike against higher fuel prices and taxes that began on Wednesday continued beyond five days, traders said.

Steel stocks fell after producers pledged to cut prices of steel pipes and tubes by 10 per cent after a meeting with the steel ministry.

Tata Steel, the world’s sixth-largest steelmaker, fell 11.3 per cent to Rs657.45, its lowest close in three months. State-run Steel Authority of India fell9.8 per cent to Rs128.

Reliance Industries Ltd, which has the heaviest weight in the BSE index, fell 3.4 per cent to Rs2,071.10 on foreign fund selling after a few brokerages cut its price target. Traders said investors were also watching political developments after the Times of India reported on Thursday that the regional Samajwadi Party may demand the removal of the finance minister, oil minister and central bank governor for its support to the government.