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Indian shares rose on Tuesday, as data showed domestic retail inflation for November eased below the Reserve Bank of India's tolerance limit, although caution ahead of the U.S. inflation data capped further gains.

The Nifty 50 index was up 0.30% at 18,552.80, as of 11:00 a.m. IST, and the S&P BSE Sensex rose 0.39% to 62,366.42.

India's annual retail inflation eased to 5.88% in November from 6.77% in October, amid a softer rise in food prices, government data showed on Monday, bolstering expectations of a slower pace of interest rate hikes. Analysts in a Reuters poll had predicted a November reading of 6.40%.

Neeraj Dewan, Director of Quantum Securities said that markets are awaiting the U.S. inflation data and Fed rate decision before making a decisive upward move after a few listless sessions.

The U.S. inflation data, due at 7:00 p.m. IST (1330 GMT), will be closely watched for cues on the Federal Reserve's rate-hike stance.

The Fed is largely expected to increase interest rate by 50 basis points at its policy meeting this week, after raising it by 375 bps since March.

"Fed is unlikely to be aggressive with its rate hike even if inflation in the U.S. did not cool off, as expected", said Deven Choksey, Managing Director of KRChoksey Holdings Pvt, adding aggressive rate hikes could lead to an "ugly impact on unemployment and growth".

Analysts said a slide in U.S. inflation on Tuesday could set the stage for a Santa Claus rally in the Indian stock markets.

All the major sectoral indexes barring Nifty FMCG and Nifty Metal advanced, with Nifty Bank rising 0.52% to a new record high.

(Nifty Bank surges to record high https://www.reuters.com/graphics/NIFTY-BANK/BANK-NIFTY/dwvkdddwwpm/chart.png)

Nifty Auto added about 0.6%, helped by gains in Tata Motors after the company said it was exploring the sale of a portion of its 74.43% stake in Tata Technologies through an IPO.