Tuesday September 1, 06:30 PM

Rupee at 1-½ mnth low as stocks decline

By Swati Bhat

MUMBAI (Reuters) - The rupee fell to its lowest level since mid-July on Tuesday as weaker global equities raised worries foreigners may start pulling out funds from emerging market assets including local shares.

The partially convertible rupee closed at 49.05/06 per dollar, just off a late low of 49.06, its weakest since July 13. It ended 0.4 percent weaker than Monday's close of 48.83/84.

In morning trade the rupee had risen to 48.6750, but lost ground as the stock market surrendered early gains.

"With equities turning negative, the rupee was immediately sold. There was good demand from custodians, oil firms as well as importers. Lots of inter-bank shorts were also cut," said Madhusudan Somani, head of foreign exchange trading, at Yes Bank (YESBANK.NS : 248.85 -1).

"Last couple of days we had seen decent offers above 49.00 from exporters as well as state-run banks. We will have to see if they come this time around as well," he said, adding 49.10/12 was a very important technical level.

"If we break above that, then 49.48 looks doable on spot."

Global stocks and oil fell on Tuesday and government bonds rose as investors grew concerned about the durability of the recent rally.

Local shares erased gains of as much 1.6 percent and ended 0.7 percent lower, their second straight fall, as a retreat by European peers hit investor confidence.

Foreign funds moving in and out of the stock market are a key driver of the rupee. Foreigners have bought a net $8.3 billion worth of local shares so far in 2009, following net sales of more than $13 billion last year.

"Global equities are looking a little wobbly. Maybe we have a correction at hand and that is putting pressure on a lot of the risk currencies globally," Yes Bank's Somani said.

"All emerging market currencies are under some pressure, with rupee being the clear underperformer amongst them."

Dealers said gains in the dollar versus major currencies also hurt rupee sentiment. The dollar index, a gauge of the U.S. unit's performance against six majors, was up 0.2 percent.

One-month offshore non-deliverable forward contracts were quoting at 49.06/16, little different to the onshore close.

In the currency futures market, the most traded near-month contract on the National Stock Exchange (^NSEI : 4941.75 -63.8) and MCX-SX both closed at 49.10, with the total traded volume on the two exchanges at about an average $1.8 billion.

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