MUMBAI: Rupee strengthened on Wednesday as gains in the local stock market raised hopes of some fresh capital inflows but traders said month-end dollar demand from oil firms and importers was likely to keep a lid on gains. At 10.00 am (0430 GMT), the partially convertible rupee was at 49.73/74 per dollar, 0.3 per cent stronger than 49.87/88 at its close on Monday, when it struck a record low of 50.29 during trade. The currency market was closed on Tuesday due to a religious holiday.

“Asian stocks are slightly higher, our markets are expected to do well also but then month-end dollar demand from oil firms will counter the rise of the rupee,” said a senior dealer with a private bank. “The rupee is likely to stay in a 49.60 to 49.85 range in this session,” he added. India’s main share index opened up 3.2 per cent, sparked by gains in overseas markets on hopes of a US interest rate cut.

But it quickly gave up some ground with investors concerned about corporate earnings slowing amid fears of a global recession. Foreign funds have sold a net $12.6 billion worth of Indian stocks so far in 2008, a key factor in the rupee’s 20.8 per cent fall.

They bought a record $17.4 billion last year, helping the index rise 47 per cent and the rupee gain more than 12 per cent. Asian stocks and government bonds rallied on Wednesday on hopes the Bank of Japan and the Federal Reserve would deliver interest rate cuts this week to support the sharply slowing global economy.

Oil jumped as much as 6 per cent after US stock indices staged their second-biggest point gain ever. Oil is India’s biggest import and refiners are the largest buyers of dollars in the domestic currency market. Their demand tends to peak at the end of each month, when they make payments for their imports.

One-month offshore non-deliverable forwards were quoting at 51.90/52.10, weaker than the onshore spot rate, indicating a bearish outlook for the rupee in the near term.

source: Economictimes

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