Rupee gains; sentiment remains cautious on politics, economy

By Subhadip Sircar

MUMBAI (Reuters) - The rupee rose on Friday, snapping two sessions of losses, but the gains lacked conviction as the local currency remained buffeted by fears of political instability and macro-economic concerns.

Indian shares have shed over 3 percent in the last three sessions, largely driven by concerns that foreign investors would start selling after being net buyers of over $10 billion so far this year and about $25 billion last year.

The falls come even after the Bank of Japan's massive stimulus announced on Thursday is seen potentially unleashing global money flows.

Analysts attribute the selling to concerns over India's record current account deficit and political stability, as well as rising global risk aversion ahead of U.S. monthly jobs data due later in the day.

As a result, the rupee has fallen 0.9 percent this week, its second week of fall in three.

"The outlook will remain bearish for the rupee. Overall, the current account deficit remains a big issue and the political situation is becoming increasingly murky with talk of early elections," said Subramanian Sharma, director at Greenback Forex.

He expects the rupee to trade in a 54.50-55.20 band next week.

The partially convertible rupee closed at 54.8050/8150 per dollar versus 54.87/88 on Thursday.

Overseas investors have been net sellers of $687.5 million in debt and equity in the last three sessions, as per data available from the capital market regulator.

Investors will continue to focus on foreign flows next week, while consumer price inflation and factory output data on April 12 will also be the key for domestic currency markets.

A Reuters poll forecast the Indian rupee to gain about 4 percent in twelve month's time, although it will likely trade around current levels over this quarter.

In the offshore non-deliverable forwards, the one-month contract was at 55.20 while the three-month was at 55.86.

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 closed at around 55.09 with a total traded volume of $3.5 billion.

(Editing by Anand Basu)