By Swati Bhat
REUTERS - The rupee strengthened for a fourth straight session on Tuesday, its longest winning streak in four months, as foreign banks sold dollars likely on behalf of their offshore clients looking to invest in the domestic share market.
Most other Asian currencies also rose against the dollar as hopes of further monetary easing by major central banks boosted demand for riskier assets.
Traders also cited some talk of foreign funds bringing in dollars ahead of the auction of foreign investor limits in government debt.
The government last week increased foreign investor limits in government debt by $5 billion to $20 billion. The increased limits will be auctioned by the stock market regulator on Wednesday.
Portfolio investors too have turned bullish after the Indian government released draft rules last week and said the general anti-avoidance rules, or GAAR, would not apply retroactively, a big concern for such investors.
Foreign investors were net buyers of 5.91 billion rupees worth of shares on Monday, provisional NSE data showed.
The BSE Sensex closed up 0.2 percent, led by gains in telecom stocks such as Bharti Airtel
, after a tribunal's split verdict on 3G mutual roaming pacts.
"There were a lot of client flows seen today. There were rumours of FII flows for the debt auction though I really doubt that," said Paresh Nayar, head of fixed income and forex at First Rand Bank in Mumbai.
"Sentiment is clearly in favour of the rupee, so if the euro holds up well, we may very well have an opening close to 54 tomorrow. The bidding at the debt limit auction will be a crucial determinant of the near-term rupee direction."
Some traders speculated that the dollar sales by foreign banks were flows that have likely come in for the debt limits auction on Wednesday, though not all participants were certain as most often these flows usually hit the market only after the allocation of limits.
Most foreign banks said the debt auction is expected to see low interest due to the three-year lock-in clause and also on account of July 4 being a U.S. holiday.
"Heard some inflows for debt auctions, NDF unwinding and stop-losses, all were helping the rupee," said Vikas Babu Chittiprolu, a foreign exchange dealer with Andhra Bank.
"Exporters' panic was seen which further helped the rupee. Oil firms were not seen in the market today," he added.
The partially convertible rupee closed at 54.36/37 per dollar, after hitting 54.35, its strongest level since May 17 and 2 percent above its close of 55.43/44 on Monday.
The one-month offshore non-deliverable forward contracts were quoted at 54.72 versus 55.75 at close on Monday.
The rupee has staged a smart recovery from its record low of 57.32 on June 22. The unit, however, is still down over 10.5 percent from its 2012 high, reached in early February.
In the currency futures market, the most traded near-month dollar-rupee contract on the National Stock Exchange, the United Stock Exchange and the MCX-SX all ended at 54.78. The total volume was at $6 billion.