Rupee hits one-week low on coal ruling, then recovers

By Swati Bhat

MUMBAI (Reuters) - The rupee fell to its weakest in nearly a week after the cancellation of coal blocks allocated to companies raised concerns that more coal would be imported, but the currency then recovered to end almost flat for the day on dollar sales from custodian banks.

The Supreme Court on Wednesday scrapped all but four of 218 coal blocks allocated by the government over the past two decades, raising concerns that resorting to imports would widen the trade and current account deficits.

But traders said the six months given to companies to return the coal blocks and the likelihood the government would soon re-auction allocations could prevent the country from resorting to higher coal imports.

"The rupee weakened a bit in a knee-jerk reaction post the coal block verdict but foreign banks and exporters started selling above the 61 mark," said Uday Bhatt, a foreign exchange dealer with UCO Bank.

"The rupee will continue to hold in a narrow range, likely 60.75 to 61.25, until September end," he added.

The partially convertible rupee ended at 60.96/97 per dollar compared with Tuesday's close of 60.94/95.

Dollar demand from oil and other importers to meet month-end import commitments also pressured the rupee, which fell to as low as 61.07 in late trade, its weakest against the dollar since Sept. 18.

The rupee could also remain under pressure ahead of the Reserve Bank of India's policy review on Sept. 30.

The central bank is expected to keep interest rates on hold until the April-June quarter of next year, when it may loosen policy, a Reuters poll showed on Wednesday.

In the offshore non-deliverable forwards, the one-month contract was at 61.23/33, while the three-month was at 61.80/90.

(Editing by Anand Basu)