Rupee posts best month in 17 yrs, seen gaining

The rupee logged its best monthly gains in more than 17 years in January aided by a rebound in foreign fund inflows as investors bet on a monetary easing to accelerate growth in Asia's third-largest economy.

Overseas investors bought Indian shares worth $2.1 billion so far in January, after net outflows of about $500 million in 2011, and invested $3.3 in debt.

"Renewed capital inflows aided by peak in Indian rate cycle and easing inflation are pushing the rupee higher," said Chin Thio, senior forex strategist at BNP Paribas in Singapore.

On Tuesday, the partially convertible rupee ended at 49.44/45 to the dollar, after moving in a 49.3200 to 49.7425 range, and up from Monday's close of 49.79/80.

In January, the rupee has strengthened about 7.45% against the dollar, the largest monthly gain since the last month of 1994, Thomson Reuters data showed.

India's wholesale price index (WPI), the main inflation gauge, rose 7.47% from a year earlier, slowing from a 9.11% rise in November.

India's central bank will watch for a sustained fall in inflation before it moves ahead with a cut in policy rates, Reserve Bank of India Deputy Governor Subir Gokarn said on Monday.

"49.12 marks the next support for the dollar, albeit (we) expect bouts of short-covering to slow the pace of pullback, contingent also on risk-appetite," said Radhika Rao, economist at Forecast in Singapore.

Indian shares posted their best January rise since 1994, after gaining about 2% on Tuesday. The main index rose 11.3% in January, its first monthly rise in three, and the best month since September 2010.

The euro, shares and commodities all gained encouraged by hopes for a Greek bond deal this week and after European leaders backed a pact that is hoped will tackle the underlying causes of the region's debt crisis.

One-month offshore non-deliverable forward contracts were at 49.82 .

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 all ended around 49.8, on total volume of $4.6 billion.