Foreign inflow hopes, dollar fall lift rupee

The rupee pulled back further on Tuesday from the over two-month trough hit in the previous session, as local stocks gained, reflecting an improved risk appetite globally after the US Federal Reserve Chairman Ben Bernanke's speech.

At 10:40 a.m, the rupee was at 51.0550/0600 to the dollar, after hitting 51.0250 in early trade. It closed at 51.265/275 on Monday.

"The dollar has been sold across the board and sentiment is positive after comments from the US Fed," said a senior currency trader at a state-owned bank. He expects the unit to move in a wide band of 51.00 to 51.30 during the session.

Underlining the need to keep the loose monetary policy for some more time, Bernanke said, "... Further significant improvements in the unemployment rate will likely require a more rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies.

Asian stocks rebounded and the dollar struggled near one-month low after the comments.

Some dealers, however, saw the US Fed's comments as a speed bump in the way of rupee's gain.

"We are likely to see (dollar demand) from gold and oil bids since a rally in commodities could be seen after Bernanke's dovish comments," said a currency trader with a state-owned bank.

India imports about 80% of the oil that it consumes and refiners are the biggest buyers of dollars in the currency market, with their demand tending to peak towards the close of each month when they make payments.

Dollar demand from this section has picked up in the past few weeks due to fears that tensions between Iran and the US could result in sanctions on Tehran's customers, making it difficult for New Delhi, which buys 12% of its oil needs from Iran, to receive supply and make payments.

International Energy Agency's executive director, however, told Reuters that New Delhi could be exempted from tighter US sanctions.

Brent held steady above $125 due to raised investors' appetite for riskier assets and supply concerns amid tightening Western sanctions on Iran over the Islamic Republic's disputed nuclear program.

The one-month offshore non-deliverable forward contracts were at 51.59.

In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange were all ended around 51.07, on a total volume of $1.42 billion.