Renewed confidence about India's economy is sending stock prices to new highs. The country's rapid economic growth is fueling demand for shares.

More than six months ago, when a Congress government backed by Communists was sworn into power, Indian share prices plunged on fears that the new government might derail economic reforms. Investors remained cautious for months.

But this past week, stocks traded at an all-time high, and now are up 40 percent since May. The Economic Times newspaper says stock prices of more than one thousand companies listed on Bombay's stock exchange have touched 52 week highs.

Analysts say the Congress government's commitment to economic liberalization has helped dispel the fears of many, and paved the way for surging business and investor confidence.

Rajesh Jain, a market analyst at Pranav Securities, says the stock market surge is driven by funds flowing in from domestic and foreign institutions as well as from retail investors. He says more than $2 billion were pumped into Indian stock markets in November. "The key reason for stock markets continuing to surge up has been liquidity. It basically appears that the India investment story has been able to retain its place among the various emerging markets across the world, and in particula [information technology] as well as infrastructure [sectors] are doing very well," he said.

Software makers are expected to see revenues rise by more than 30 percent this year. The government also has announced plans for large infrastructure projects to develop ports, power plants and roads. Many manufacturing companies are pushing expansion plans and posting healthy profits.

The recent rally has gotten a boost by signs that a dispute among members of the family that controls' Reliance, India's biggest private conglomerate, is easing.

Funds pumped in by foreign institutional investors have hit nearly $7 billion so far this year - higher than last year's total foreign investments. More than $1 billion flowed in November alone.

Analysts say high inflation of about seven percent, surging oil prices and a slowdown in the farm sector have not cooled investor confidence.

Many economists say the country's economic growth may slow down from last year's 8.2 percent, but it still is expected to expand at more six percent next year.