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Indian shares are set to open flat on Friday, after a sharp rally in the previous session to an all-time high, with traders expecting markets to consolidate near current levels.

The GIFT Nifty was at 25,384.5 points, as of 08:17 a.m. IST, indicating the NSE Nifty 50 will open near Thursday's record closing high of 25,388.9.

Nifty 50 and S&P BSE Sensex indexes rose about 2% each on Thursday in their best session since early June to hit record highs.

The rally, led by commodities, was sparked by foreign inflows and expectations that top metals consumer China is likely to cut interest rates on mortgages to boost consumption.

Foreign portfolio investors (FPI) net bought Indian shares worth 76.95 billion rupees ($916.66 million) on Friday, highest FPI inflows since June 19.

Analysts expect FII inflows to Indian equities to rise on firm hopes of a modest U.S. rate cut and on domestic macroeconomic stability.

"The benchmarks' rally in the final hour was supported by major buying seen in large-caps, which outperformed the broader market," said Siddhartha Khemka, head of research of wealth management, Motilal Oswal Financial Services.

Markets are likely to see only incremental moves as an equilibrium emerges between the tendency of some investors to lock in profits after a rally, while others resort to buying every dip, two traders said.

India's August retail inflation remained below the central bank's target of 4% for the second consecutive month, data showed after the market closed on Thursday.

Still, rising prices of food and vegetables dampened expectations of a rate cut in the next monetary policy meeting, according to analysts.

Asian markets were trading higher, with the MSCI Asia ex-Japan index gaining 0.6%.

Wall Street equities closed higher overnight after producer price index inflation data reinforced expectations of a 25-basis-point U.S. rate cut next week. [MKTS/GLOB]

STOCKS TO WATCH

** HG Infra Engineering receives order worth 7.16 billion rupees from Central Railway.

** Adani group stocks will be in focus after the Indian conglomerate denies involvement in any Swiss court proceedings after U.S. short-seller Hindenburg Research indicated authorities had frozen more than $310 million of the group's funds.

** Life Insurance Corp of India raises stake in IRCTC to 9.298% from 7.278%.

($1 = 83.9460 Indian rupees)