Rupee's gains pared by import dollar demand.

MUMBAI: The rupee gained on Thursday aided by a stronger euro and mildly higher domestic shares, but dollar buying by oil firms and some defence-related import payments pulled it off the day's highs.

The partially convertible rupee closed at 46.84/85 per dollar, 0.1 per cent stronger than its 46.90/91 close on Wednesday. It traded in a range of 46.7550-46.88 during the day.

"The market was long dollar overnight, but with the euro/dollar retracing higher, we saw some long unwinding in the morning," said Vikas Chittiprolu, a senior foreign exchange dealer with state-run Andhra Bank.

"However, with bids from defence companies and month-end dollar demand kept the rupee under pressure absorbing the offering from exporters."

Oil is India's biggest import and refiners are the largest buyers of dollars in the domestic currency market. Demand for dollars tends to peak towards month end when banks are required to make payments for their purchases.

The euro rose on Thursday as a rise in global share prices prompted investors to pick up riskier currencies, but gains were capped as more weak US economic data indicated the pace of recovery was slowing.

The index of the dollar against six majors was 0.4 per cent lower while most Asian units too rose compared to the dollar.

"The rupee was largely steady after opening stronger today. There was some month-end demand at lower levels, a lot of state-run banks were dollar buyers today," a senior dealer with a foreign bank said.

"The rupee should remain rangebound between 46.68 and 47.12 with no clear triggers on either side for the near-term. May be tomorrow's Jackson Hole conference speech by Ben Bernanke may give the market some direction," he added.

Federal Reserve Chairman Ben Bernanke will speak at the Kansas City conference on Friday, and is likely to signal his views about the US economy, but analysts say he is unlikely to offer clues to the Fed's policy outlook.

Traders said mild gains in shares helped rupee sentiment but inflows seen in recent weeks have come in chunks and hence have not help the rupee appreciate much.

Shares nudged 0.3 per cent higher as world stocks rebounded from seven-week lows in another burst of the risk-on, risk-off trading that has dominated financial markets this year, with financials topping the gains.

Foreign portfolio investments have reached $12.7 billion so far in 2010, data from the stock regulator shows. Last year, a record $17.5 billion inflows helped the rupee gain 4.7 per cent.

One-month offshore non-deliverable forward contracts were quoted at 47.08, weaker than the onshore spot rate, suggesting a bearish near-term outlook.

In the currency futures market, the most traded near-month dollar-rupee contracts on both the National Stock Exchange and MCX-SX closed at 46.8625, with total traded volume on the two exchanges at an average $5.7 billion.

Source : economictimes.indiatimes.com