Rupee drops on euro fall; choppy shares hurt

The rupee weakened on Monday tracking the euro's losses versus the dollar while a choppy local stock market failed to provide any clear cues on the direction of foreign fund flows.

At 10:35 am, the partially convertible rupee was at 45.16/17 per dollar, 0.2 per cent weaker than its 45.05/06 close on Friday.

"There is good bidding for the dollar seen from morning. Hearing there are some corporates in the market too. I am expecting the rupee to trade in a range of 45.07-45.27 today," said Hari Chandramgathan, a forex dealer with Federal Bank.

The euro slipped on Monday, looking set to remain in its downtrend for now, while the dollar held steady, supported by higher Treasury yields after improving US data late last week.

The index of the dollar against six major currencies was up 0.25 per cent at 80.274 points. Asian currencies were trading mixed.

"Rupee is so far just following the equity markets. Not much action otherwise," said Ashtosh Raina, head of foreign exchange trading at HDFC Bank.

Traders expect the rupee to broadly move in a 45.00-45.30 band on Monday.

Indian shares erased early gains and briefly turned negative as investor sentiment was shaky on a deepening probe into alleged corruption in telecoms licences distribution.

Foreign funds had dumped a net $728.74 million worth of shares in four sessions until last Thursday. However, total foreign fund inflows so far in 2010 still stand at $28.7 billion, on top of the $17.5 billion purchased last year.

Traders said better-than-expected industrial output data on Friday had renewed hopes for sustained foreign fund investments into Asia's third-largest economy.

India's annual industrial output in October grew at its fastest clip in three months, powered by demand for consumer durable goods such as cars, though the data is unlikely to prompt the central bank to raise interest rates next week.

Traders said they will now watch the inflation data on Tuesday for cues on the central bank's future policy stance. The Reserve Bank of India is expected to hold rates steady at its review on Thursday.

India's wholesale price index in November probably rose 7.48 per cent from a year earlier, a Reuters poll showed, slower than an 8.58-per cent increase in October -- which was its lowest reading in 10 months.

Traders would also watch inflows towards an initial public offering by Punjab and Sind Bank, which aims to raise up to 4.8 billion rupees ($106 million).

One-month offshore non-deliverable forward contracts were quoted at 45.39, weaker than the onshore spot rate, indicating a bearish near-term outlook.

In the currency futures market , the most traded near-month dollar-rupee contracts on the National Stock Exchange and MCX-SX were at 45.3075, while that on the United Stock Exchange was at 45.31.

The total traded volume on the three exchanges including all available contracts was at $810 million.