The support for the Nifty now lies at 5,418 and resistance at 5,550

The market closed with modest gains amid high volatility on the back of a sharp rise in headline inflation numbers for May and worries that the Reserve Bank of India (RBI) could toughen its stance at its monetary policy review on Thursday.

The market snapped its four-day losing streak, opening higher this morning, tracking the gains in Asian markets on the back of Chinese inflation numbers that were in line with analysts' expectations. The Sensex opened 11 points higher at 18,277 and the Nifty added three points to its Monday's close to open at 5,846. Early gains were supported by buying in oil & gas, metals and banking stocks.

The market touched its intra-day high in the first half hour with the Sensex climbing to 18,380 and the Nifty to 5,520. However, some profit-taking resulted in the indices paring some of the gains. While the market maintained its positive momentum, a rise in the monthly inflation numbers for May pushed the benchmarks southwards. The choppiness continued on concerns of higher prices of food as well as non-food items.

The indices touched the day's low in noon trade with the Sensex and the Nifty paring all their gains, almost touching their previous closing figures. The positive opening in key European markets and higher US futures lifted the domestic market in late trade. The market closed in the positive, with the Sensex adding 43 points to 18,309 and the Nifty gaining 18 points to 5,501, above the psychological 5,500 level.

The advance-decline ratio on the National Stock Exchange was a positive 777:598.

The market is expected to continue its range-bound movement over the next few days. The next support for the Nifty lies at 5,418 and resistance at 5,550.

The broader indices outperformed the Sensex, with the BSE Mid-cap index rising 0.60% and the BSE Small-cap index gaining 0.37%.

In the sectoral space, BSE Capital Goods (up 1.03%), BSE Power (up 0.96%), BSE Fast Moving Consumer Goods (up 0.86%), BSE Bankex (up 0.83%) and BSE Realty (up 0.65%) were the top gainers. BSE Consumer Durables (down 1.42%), BSE Oil & Gas (down 0.77%) and BSE Auto (down 0.19%) were the losers.

The top gainers on the Sensex were Reliance Infrastructure (up 2.35%), Bajaj Auto (up 2.26%), Jindal Steel (up 1.97%), ICICI Bank and ITC (up 1.52% each). Tata Motors (down 2.84%), Hindalco Industries (down 2%), HDFC (down 1.42%), Reliance Industries (down 1.41%) and Cipla (down 1.09%) ended at the bottom of the index.

The top gainers on the Nifty were Reliance Infra (up 2.63%), Axis Bank (up 2.38%), Bajaj Auto (up 2.30%), Jindal Steel (up 2.23%) and Reliance Capital (up 1.95%). The major losers were Tata Motors (down 2.89%), IDFC (down 2.05%), Hindalco (down 2.02%), Cipla (down 1.60%) and RIL (down 1.53%).

Citigroup today said that it has reduced its 11.4% stake in Housing Development Finance Corporation (HDFC) by 1.5% to 9.9%. The reduction in its holdings in HDFC to below 10% is a part of Citi's mitigation efforts ahead of the adoption of Basel III capital rules. The transaction resulted in a pre-tax profit of approximately $160 million, the bank said in a statement.

India's headline inflation went up to 9.06% in May on rising prices of manufactured products and petrol which is widely expected to prompt the RBI to go for another rate hike mid-quarterly review meeting this week. Inflation, as measured by the Wholesale Price Index (WPI), stood at 8.66% in April. It was 10.48% in May 2010.

Markets in Asia, with the exception of the Hang Seng and Straits Times, closed with gains, as Chinese inflation data was in line with expectations. However, the announcement of the hike in bank reserve requirements by the People's Bank of China pulled down stocks in Hong Kong. China's inflation accelerated in May to a 34-month high of 5.5% and up from 5.3% in April. Later in the day, the country's central bank announced a 50 basis point increase in reserve requirements for lenders.

This apart, the Bank of Japan kept its interest rates steady at 0%-0.1% and added 500 billion yen ($6 billion) to its 3-trillion-yen loan scheme, aimed at boosting lending to industries with growth potential.

The Shanghai Composite was up 1%, the Jakarta Composite rose 0.65%, the KLSE Composite gained 0.17%, the Nikkei 225 climbed 1.05%, the Seoul Composite advanced 1.37% and the Taiwan Weighted jumped 1.33%. On the other hand, the Hang Seng and the Straits Times lost 0.05% each.

Back home, foreign institutional investors were net sellers of equities worth Rs304.17 crore on Monday whereas domestic institutional investors were net buyers of stocks worth Rs27.34 crore.