By Derek Francis and Chris Thomas
BENGALURU, Dec 5 (Reuters) - Indian shares pared early gains to trade lower on Thursday after the country's central bank kept its policy rate unchanged, surprising investors who were expecting at least a 25 basis-point cut.
The NSE Nifty 50 index .NSEI fell 0.12% to 12,28.65 and the S&P BSE Sensex .BSESN shed 0.06% to 40,824.68 by 0636 GMT.
The Reserve Bank of India (RBI) left its key repo rate INREPO=ECI unchanged at 5.15%, and said it would continue with an accommodative stance after its policy meeting.
Economists polled by Reuters expected the central bank to cut rates for the sixth time this year.
"While the decision to pause is not entirely unjustified given the clear lack of efficacy of monetary policy actions through the policy rate cut channel, what is worrying is that the RBI did not announce any unconventional measure but hoped for better transmission of its past actions," said Kunal Kundu, an economist with Societe Generale in Bengaluru.
Expectations of a rate cut were fueled after India's economic growth slowed to 4.5% in the July-September period, its weakest pace since 2013, piling pressure on Prime Minister Narendra Modi to speed up reforms.
The Nifty had risen 7.7% and the Sensex has gained 8.43% since the last rate cut in October, mainly due to measures such as reducing the corporate tax rate and hopes of more stimulus.
The benchmark 10-year bond yield IN064529G=CC rose to 6.5502% from 6.4735% before the announcement, while the rupee INR=D4 weakened to 71.58 against the U.S. dollar. The local currency stood at 71.5 before the decision.
Among the sectors, the Nifty metals index .NIFTYMET fell most, shedding 1.32%.
Zee Entertainment ZEE.NS rose 1.37% to the top of the Nifty, while Coal India COAL.NS was the biggest laggard, dropping 2.29%.
Meanwhile, MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.3% on signs the United States and China were on track for a preliminary trade deal. MKTS/GLOB
(Reporting by Derek Francis in Bengaluru; Editing by Sriraj Kalluvila)
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