India's rupee strengthened and stocks jumped Thursday after new central bank governor Raghuram Rajan outlined a reform plan aimed at boosting investor confidence and stabilising the ailing currency.

The rupee gained 1.58 percent at 66.01 against the dollar on investor hopes that the worst could be over for the currency, the worst performing in Asia this year.

Indian shares also closed up 2.22 percent to 18,979.76 points as all major banking stocks surged after Rajan took over Wednesday from Duvvuri Subbarao as head of the Reserve Bank of India (RBI).

Private Yes Bank was a top gainer, closing up 21.5 percent at 287.55 rupees, after Rajan pledged to open up India's banking sector.

Rajan, a former IMF chief economist, sought to reassure rattled markets with his first speech in the post, outlining a fresh approach to the currency crisis and warning that he may have to take unpopular steps to get Asia's third largest economy back on track.

Sonal Varma, an economist at Nomura Securities, said Rajan had made "an impressive start", but she stressed that a weak growth outlook was still a "major concern".

"In our view, amid the current gloom, the new RBI governor has infused a sense of optimism that he is in charge and that the RBI under him will unleash more financial sector reforms, a medium-term positive for the economy," she said.

Rajan emphasised the importance of transparency and consistency in the bank's actions, after the RBI spent weeks trying and failing to stabilise the rupee with a range of measures.

Rajan, famed for forecasting the 2008 global financial crisis, stressed he would hew to the RBI's mandate of "securing monetary stability" and sustaining confidence in the value of the country's money, which means "low and stable inflation".

India's Finance Minister P. Chidambaram on Thursday also sought to allay investor concerns over the currency, saying "we think it has overshot its value". "Rupee correction will take place", Chidambaram told parliament.

India faces its worst financial crisis in decades, as the once-booming economy grapples with sharply slowing growth, high inflation and a record current account deficit.

Some analysts fear the economy could be heading for a meltdown with the rupee down around 22 percent against the dollar this year.

Rajan's bold entry to the job, announcing a raft of financial deregulatory measures, received rave reviews from economists and the local media.

"This was easily the most substantive speech by a Reserve Bank governor on his first day in office," financial daily Business Standard said on Thursday.

With a mock photograph of Rajan in a James Bond-style pose on its front page, The Economic Times newspaper said he had "gotten off to a good start, radiating brisk purpose and optimism".

A parody account on Twitter, named "The Governator", has already been set up and attracted more than 1,500 followers. The website of the business newspaper Mint ran a slideshow of photos of Rajan, who was described by the Mumbai Mirror as having "rather photogenic appeal".

Rajan left his post as a professor at the prestigious University of Chicago's Booth School of Business and returned to India last year to become a financial adviser to the prime minister before taking up the new job.

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