The BSE Sensex erased early gains and was trading down 0.4 percent on Thursday, as the near-term outlook for foreign funds' interest was far from promising due to better prospects elsewhere.

Traders said the market would be choppy with investors adjusting their positions on the last day for monthly derivatives contracts on the National Stock Exchange.

Weekly food and fuel price data expected by noon (0630 GMT) also weighed on investors, after the central bank raised key policy rates by an expected 0.25 percentage point on Tuesday to clamp down on inflation pressures.

Top utility vehicle maker Mahindra & Mahindra dropped 2.7 percent after Goldman Sachs downgraded the stock to sell from buy.

By 10:43 a.m. (0513 GMT), the 30-share BSE index was trading down 0.44 percent at 18,885.90 points, with half of its components declining. It had started 0.6 percent higher.

The trend is clearly downwards. There are no positives on the horizon to drive the market higher, said Ambareesh Baliga, senior vice president at Karvy Stock Broking.

Foreign funds have withdrawn around $849 million from Indian equities so far this month, and the BSE index is down 7.9 percent in the period putting the benchmark on track for its worst monthly fall in more than two years.

The midcap sector index and smallcap sector index have both shed more than 7 percent this month.

With developed economies faring better than before, there could be a reversal in hot money - the ETF flows from countries like India, Baliga said, referring to exchange-traded funds.

Outsourcers Infosys Technologies and Wipro dropping 1.2 percent and 1 percent respectively, while sector leader Tata Consultancy Services edged 0.4 percent higher.

Sterlite Industries fell 3.2 percent after an arbitration panel ruled against the company's call option to buy the remaining 49 percent in Bharat Aluminium Co.

Sterlite may have to pay a higher price for Balco, Baliga said.

The company, a unit of Vedanta Resources, reported a 61 percent jump in quarterly profit on Tuesday that was however lower than expectations.

Indian markets were shut on Wednesday for a public holiday.

Private-sector lender HDFC Bank was down 1.4 percent ahead of its quarterly earnings announcement.

In the broader market, gainers and losers were almost equal in number, while 58 million shares changed hands on the BSE.

The 50-share NSE index was down 0.3 percent at 5,669.45 points.

The MSCI's measure of Asian markets other than Japan was up 0.4 percent, while Japan's Nikkei was trading 0.8 percent higher.

STOCKS ON THE MOVE

* Atlas Copco rose 15.1 percent to 2,151 rupees after the industrial and construction equipment maker raised its offer price to delist the company from the Indian bourses to 2,250 rupees from 1,426 rupees.

* State-run oil marketing companies such as Indian Oil Corp, Bharat Petroleum Corp, and Hindustan Petroleum Corp were down between 0.3 percent and 0.9 percent, as world oil prices extended gains for the second session.

MAIN TOP THREE BY VOLUME

* Midvalley Entertainment on 12.8 million shares

* C Mahendra on 3.2 million shares

* Lloyd Steel on 1.9 million shares

India Japan Goldman sachs Wipro