Rupee Recovers From 2-mth Low on Export Sales.

MUMBAI: The rupee slipped to a fresh two-month low on Wednesday amid an equity market sell-off in late trade on reports of a federal probe into loans issued by financial institutions, while broad dollar gains also weighed.

India's federal investigating agency said on Wednesday it had arrested at least eight officials from banks and financial institutions on charges of taking bribes to grant large corporate loans, the country's third big corruption scandal in the past few months.

"Lots of action seen after reports of the scam. Market sentiment is bearish. 45.80 per dollar is a crucial level, but the near-term outlook looks dicey. The dollar could go further up," said Ashtosh Raina, head of forex trading at HDFC Bank .

The partially convertible rupee closed at 45.6950/7050 per dollar, 0.3 percent below its 45.57/58 close on Tuesday. The rupee, however, recovered from the day's low of 45.8350, which was its lowest since Sept. 21.

"USD/INR was very firm after scam reports and equity sell-off, but there were good offers from state-run banks and exporters which pulled it off its lows," said the chief foreign exchange dealer with a foreign bank.

Shares dropped 1.2 percent to their lowest close in 10 weeks, as reports pointed to a federal probe into loans issued by some financials, adding to investor nervousness in a country already grappling with a telecom licence scandal.

However, foreign portfolio investors have snapped up a record $28.5 billion worth of Indian equities so far this year, in addition to last year's $17.5 billion.

The euro hit a two-month low against the dollar on Wednesday as an earlier recovery fizzled out due to worries the euro zone debt crisis will spread and on renewed concerns about Korean tensions.

North Korean statement in the wake of Tuesday's artillery clash that the South's action was driving the peninsula to the brink of war prompted investors to seek safe-haven currencies.

Indian onshore forward premiums too fell across tenors as a sharp drop in the spot rupee prompted receiving, dealers said.

"Exporters were selling spot and receiving forwards, pushing premiums down," a senior dealer with a foreign bank said.

The one-year onshore dollar premium fell to 203.5 points from 214.75 points on Tuesday, while the six-month forward premium also fell to 116.75 points from 124 points at previous close.

One-month offshore non-deliverable forward contracts were quoted at 45.99, weaker than the onshore spot rate.

In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange, MCX-SX and United Stock Exchange closed at 45.74, 45.74 and 45.73 respectively, with the total traded volume on the three exchanges at a lower-than-average $6.1 billion.

Source : economictimes.indiatimes.com