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Indian Rupees Drops as Share fall; Strong Dlr Hurts

Posted on: February 12, 2009


Reuters – 1 hour 29 minutes ago

Photo credit : www.bvgh.org

india-graphicRupee drops as custodian banks buy dollars* Stronger dollar overseas hurts sentiment

* Rupee likely to be under pressure in near-term – Calyon

By Swati Bhat

MUMBAI, Feb 12 – The Indian rupee ended weaker on Thursday as the dollar gained overseas and foreign funds withdrew from a weak domestic share market, prompting custodian banks to buy the U.S. unit.

The partially convertible rupee <INR=IN> closed at 48.85/86 per dollar, 0.3 percent lower from its close of 48.69/70 on Wednesday.

“The rupee weakened tracking the dollar’s strength overseas and there was also some demand from custodian banks in late trade,” a senior dealer with a foreign bank said.

Indian shares <.BSESN> fell for a second successive day as sentiment weakened over the impact of the deepening global slowdown, but hopes for fresh stimulus measures next week kept the losses in check. See [.BO].

The dollar gained against other major currencies overseas, weakening enthusiasm for the local unit.

The dollar and yen strengthened broadly on Thursday, boosted by their perceived safety in the eyes of investors concerned about the potency of government policies to combat recession and ailing banks. [USD/].

Dealers said Indian industrial output and inflation data released on Thursday failed to deliver strong market cues.

“The data was mixed, was bad but inflation was favourable, thus the two neutralised each other,” the chief dealer with a state-run bank said.

Indian factory output contracted 2 percent in December, the data showed, while analysts said the growing prospect of negative inflation in coming months bolstered expectations for further interest rates in a slowing economy. [ID:nBOM355155].

“In the very short term, the rupee is likely to remain under pressure on the back of ongoing global deleveraging, diminished risk appetite and further slowdown in exports,” Sebastien Barbe and Eric Tsang, strategists at Calyon wrote in a recent note.

“The rupee is thus expected to test 53 per dollar level in the coming months,” they wrote.

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