BENGALURU - Indian shares reversed early losses to trade higher on Tuesday, a day after the government scrapped the special status of long-disputed Kashmir, while investors awaited the central bank's monetary policy decision scheduled on Wednesday.

The broader NSE index .NSEI rose 0.62% to 10,930.40 as of 0409 GMT, while the benchmark BSE index .BSESN was up 0.57% at 36,909.50.

India on Monday revoked a constitutional provision giving Kashmir the authority to make its own laws, potentially stoking tension in the Himalayan region, which has been a flashpoint in ties with neighbouring Pakistan.

The move further raised investor uncertainty at a time when they are already grappling with slowing economic growth and a credit squeeze.

Investors were also awaiting the Reserve Bank of India's (RBI) policy decision on Wednesday. A Reuters poll last month showed the central bank was set to cut interest rates further as the country looks to stimulate growth and spending. 

Finance minister Nirmala Sitharaman also said her department would hold talks with foreign portfolio investors (FPIs) about the tax surcharge on certain high-value investments, Mint reported.

"Domestically, the negative news flow may be behind us for the time being. There is hope in markets that the government may revive the economy and they are rallying on that hope," said Neeraj Dewan, a director at Quantum Securities.

"People are expecting the RBI to cut rates and the finance minister's statements about FPIs are also giving hope."

Banks and auto indexes led gains. The Nifty public sector banks index .NSEBANK rose 1.5%, while the auto index .NIFTYAUTO was up 1%.

The IT index .NIFTYIT was flat in early trade as the rupee firmed after touching a five-month low on Monday.

Indiabulls Housing Finance INBF.NS led the gains among NSE stocks, rising 1.8%, while Yes Bank YESB.NS and IndusInd Bank INBK.NS rose about 1.5% each.

Tata Motors TAMO.NS rose 1.8%.

Among losers, IT heavyweight Tata Consultancy Services TCS.NS dropped 0.7%, while Zee Entertainment Enterprises ZEE.NS was down 1.8%

Meanwhile, Asian peers languished after the Chinese yuan fell to a 11-year low in an escalating trade war between Beijing and Washington.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 1.5% to its lowest level since January. 

(Reporting by Derek Francis in Bengaluru; editing by Uttaresh.V) ((derek.francis@thomsonreuters.com; +91-9986311363; Tweet to @derekfrancis089 LinkedIn: https://www.linkedin.com/in/derek-francis/;))