BENGALURU, Feb 1 (Reuters) - Indian shares jumped more than 3% on Monday as Finance Minister Nirmala Sitharaman announced a slew of measures to revive the pandemic-hit economy, while bond yields rose after the government warned that fiscal deficit for 2020/2021 will be wider than expected.

Sitharaman proposed doubling healthcare spending, a vehicle scrappage policy, recapitalisation of public-sector banks and divestment of some state-owned lenders, aiming to bolster an economy that plunged into its deepest recorded slump amid the virus outbreak.

The blue-chip NSE Nifty 50 and S&P BSE Sensex indexes rose more than 3.5% to 3.7% after the budget.

The 10-year bond yield rose around 15 basis points to 6.09% and the rupee weakened slightly, after Sitharaman said India was targeting fiscal deficit for 2020/2021 at 9.5% of GDP, wider than about 7% expected earlier.

The government also announced additional market borrowing.

"The indications are that the government is doing more to promote growth rather than maintaining fiscal discipline. This is a welcome move as it will have a positive impact on growth," said Sujan Hajra, chief economist at Anand Rathi Securities.

The stock indexes had fallen for six straight sessions in the days leading up to the budget, after rocketing to record highs earlier in 2021 as India started a huge vaccination drive and as companies reported encouraging earnings.

The Nifty Auto index climbed 3.4% on Monday following the new scrappage policy, while the Nifty PSU Bank index, which tracks state-run lenders jumped 6.4%.

Banks were also supported as Sitharaman said India would set up an asset reconstruction company to take over toxic assets. State Bank of India, India's largest lender by assets, rose as much as 7.8%.

Insurers HDFC Life Insurance Co and ICICI Prudential Life Insurance Co rose between 5% and 6% after India raised the foreign investment limit in the insurance sector to 74% from 49%.

Surges in ICICI Bank and IndusInd Bank after quarterly earnings lifted the Nifty Bank index 6.8%.

The blue-chip indexes recovered from a pandemic-induced plunge in March last year to finish 2020 around 15% firmer, their best performance since 2017, fuelled by strong foreign inflows amid massive liquidity in global markets and vaccine hopes.

India's economy is seen clocking robust growth of 11% for the coming fiscal year, after likely contracting 7.7% in the current fiscal year to March 31, an annual economic survey showed on Friday.

(Reporting by Chris Thomas in Bengaluru; Editing by Shounak Dasgupta)