(Updates to close)

By Bharath Rajeswaran

Oct 10 (Reuters) - Indian shares ended marginally higher on Thursday as a drop in information technology stocks weighed on gains in financials, while markets awaited a key U.S. inflation report.

The Nifty 50 index rose 0.07% to 24,998.45, while the S&P BSE Sensex added 0.18% to 81,611.41. The indexes rose about 0.6% each earlier in the session.

IT index fell 1.25%, snapping a four-session winning streak, ahead of the second-quarter earnings of Tata Consultancy Services due after market hours. TCS fell 0.6%.

Its peers Tech Mahindra and Infosys fell about 3% and 2%, respectively, and were among the top five Nifty 50 losers.

While the outlook for Indian markets remains positive, a moderation in earnings could bring down inflated valuations and temper investor expectations, said Yogesh Patil, chief investment officer of equity at LIC Mutual Fund AMC said.

Besides earnings, TCS' commentary and guidance will be crucial to ascertain the health of the IT sector, which has been hurt by weakness in client spending in the U.S.

The outlook for the sector has improved in the last few weeks, following an outsized rate cut by U.S. Federal Reserve and data signalling a soft landing.

Investors now await the U.S. consumer price index data due later in the day for clues into the Fed's rate cut path.

Since a blowout jobs report last week, bets of a large rate cut in November have been completely priced out. Odds of a 25 basis points cut are at 82%.

Lower interest rates could spur spending in the U.S., which would benefit Indian IT firms as they rely heavily on it for their contracts.

While IT stocks fell, investor interest in high-weightage financials due to relatively cheaper valuations kept the benchmarks afloat.

Financials and banks rose about 1% each, while private banks gained 1.6%.

Kotak Mahindra Bank , HDFC Bank and IndusInd Bank were among the top five Nifty 50 gainers.

On the flip side, pharma stocks fell 2%, and was the top sectoral loser by percentage.

(Reporting by Bharath Rajeswaran in Bengaluru; Editing by Sherry Jacob-Phillips, Mrigank Dhaniwala and Varun H K)

((bharath.rajeswaran@thomsonreuters.com; +91 9769003463;))