Indian (SENSEX) stocks rebounded from the biggest decline in two weeks after the government approved plans to liberalize foreign investment rules to boost growth.

The S&P BSE Sensex advanced 0.4 percent to 19,926.55 at 9:29 a.m. in Mumbai, after falling the most since July 3 yesterday. Engineering company Larsen & Toubro Ltd. (LT) advanced 1.3 percent. Cigarette maker ITC Ltd. (ITC), which has the highest weightage on the index, surged to a record.

Reforms approved yesterday will allow overseas investors to own all of an Indian telephone company, and increase the 26 percent limit in defense production on a case-by-case basis. The government has been reviewing caps on foreign investment as it strives to lure funds to help spur a struggling economy and finance a current-account deficit that helped push the rupee to a record low this month.

Indian stocks slumped yesterday after the Reserve Bank of India on July 15 raised two interest rates to try and steady a currency that has weakened 7.3 percent against the dollar this year. The rupee’s plunge threatens to spur gains in consumer prices and prompted the central bank to leave interest rates unchanged last month, ending a run of three reductions.

Global investors sold $ 29.5 million of domestic shares on July 15, paring this year’s inflows to $ 12.4 billion, data from the regulator show. They have sold $ 929 million worth of Indian stocks this month, the most among 10 Asian markets tracked by Bloomberg, extending July’s $ 1.8 billion sell-off.

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