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Monday October 26, 11:30 AM
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Rupee weakens tracking choppy shares
MUMBAI (Reuters) - The rupee dropped on Monday tracking shaky domestic shares, which failed to provide clarity on the direction of foreign fund flows, but higher regional units and a weaker dollar prevented a sharp slide.
At 11:05 a.m. (0535 GMT), the partially convertible rupee was at 46.60/61 per dollar, 0.2 percent below Friday's close of 46.50/51. On Thursday, the rupee had dropped to as low as 46.82, its lowest since Oct. 7.
"The rupee is just tracking the stock market and other Asian units today. Market is likely to be really quiet, it should hold in a range of 46.45-46.60," a senior trader with a private bank said.
"The central bank is expected to just give some sound bytes about how soon to tighten at the policy tomorrow, but that's unlikely to have much impact on the rupee, unless there is a surprise cash reserve ratio hike," he said.
The Reserve Bank of India will keep its benchmark lending and borrowing rates on hold in its quarterly policy review on Oct. 27, a Reuters poll showed. Only three of the 20 analysts polled expected a hike in the cash reserve ratio.
Shares were trading down 0.4 percent, after a higher start, amid subdued cues from Asia, and as traders awaited more clarity from corporate earnings.
Foreign funds have bought a net $14.1 billion worth of shares so far in 2009, following net sales of more than $13 billion last year.
The dollar index, a gauge of the U.S. unit's performance versus six majors, was 0.2 percent lower. All Asian units were stronger compared to the dollar.
The dollar fell to a 14-month low against the euro on Monday as a Chinese report saying Beijing should increase its holdings of euros and yen in its foreign reserves led investors to sell the greenback.
One-month offshore non-deliverable forward contracts were quoting at 46.63/73, marginally below the onshore spot rate.
"Higher capital inflows, in conjunction with smaller trade deficits (and thereby current account deficits), and continuing U.S. dollar weakness, are likely to strengthen the rupee," economists at Axis Bank said in a note.
"The effect of a rate hike on capital flows remains uncertain, whether equity-related outflows will outweigh debt-related inflows," they added.
(Reporting by Swati Bhat; Editing by Jarshad Kakkrakandy)
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