Rupee gains tracking euro rise, broad dollar fall.

MUMBAI: The rupee rose on Tuesday boosted by gains in the euro and other regional peers, but choppy domestic shares failed to provide adequate cues on the direction of foreign capital flows.

The partially convertible rupee closed at 46.64/65 per dollar, 0.3 percent stronger than its 46.80/81 close on Monday. It traded in a range of 46.58-46.7250 during the session. "The rupee was basically tracking the euro's moves today, stocks didn't have too much impact really," said Panchadev Negi, deputy manager of forex dealing at State Bank of Travancore.

The euro rose against the dollar and came off 7-week lows against the yen on Tuesday, as solid results at Irish and Spanish bond auctions helped alleviate concerns about heavily indebted euro zone countries.

The index of the dollar against six major currencies was down 0.3 percent at the time the Indian market closed. Most regional peers too rose against the dollar.

"Outlook for the rupee is still quite bearish. I expect it to hold in a range of 46.50 to 47.40/50 this week.

Stocks too are facing good resistance around 5,450 (Nifty) levels and there are no major inflows as well," State Bank of Travancore's Negi added. Shares were barely changed after moving in a tight range, with investors undecided on the outlook as global economic recovery remains hazy.

Traders monitor share moves for cues on the direction of capital flows. So far in 2010, foreign funds have invested a net $11.6 billion in local shares, in addition to last year's record $17.5 billion investment when the rupee had risen 4.7 percent. But, due to the inconsistency of flows this year, the rupee has not appreciated much despite the inflows, dealers said.

The local unit is slightly weaker on the year. India onshore dollar premiums edged up as paying interest emerged after a sharp fall in recent sessions following weak industrial data, which had prompted investors to scale back rate hike expectations in September, when the central bank will review its monetary policy.

The one-year onshore dollar premium rose as much as 185.25 points, compared with its previous close of 175.5 points. Premiums had dropped nearly 25 points last week. "Premiums had dropped on some profit taking after the factory data and the feeling that the bearishness was more than warranted.

Now the dip from 200 points to 175 points in the 1-year onshore premiums has brought back some payers," a senior dealer with a private bank said. One-month offshore non-deliverable forward contracts were at 46.81, weaker than the onshore spot rate. In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange and MCX-SX both closed at 46.7150, with the total traded volume on the two exchanges at about $5 billion.

Source : economictimes.indiatimes.com