Rupee up on diesel price hike recommendation; Rajan comments aid

By Swati Bhat

MUMBAI (Reuters) - The rupee gained on Wednesday, recovering from earlier losses after a government panel recommended an immediate increase in diesel prices, reducing some of the concerns about the country's finances.

India should immediately raise diesel prices by about 9.5 percent or 5 rupees a litre, a government panel said on Wednesday, along with other measures aimed at cutting the government's huge oil subsidy bill.

The rupee also got a boost after Reserve Bank of India (RBI) Governor Raghuram Rajan said on Wednesday the central bank risks excessive tightening given the lag in monetary policy.

The comments were seen as more dovish after the RBI raised interest rates for a second consecutive month on Tuesday.

"The market is getting more bullish after the diesel price hike recommendation. The immediate direction, however, depends on the (U.S.) Fed meet outcome. Though nothing major is expected, one must be prepared to expect the unexpected," said Ashtosh Raina, head of foreign exchange trading at HDFC Bank.

"There is strong support for the dollar at 60.90, while 61.80 is the likely cap at the moment."

The partially convertible rupee closed at 61.2350/2450 per dollar compared with 61.31/32 on Tuesday. It moved in a range of 61.23 to 61.60 during the session.

Earlier in the day, weaker Asian currencies ahead of the outcome of the U.S. Federal Reserve's two-day meeting pressured the rupee, but gains in local shares limited a very sharp downside.

The Sensex rose on Wednesday to close at a record high, helped by strong foreign flows.

In the offshore non-deliverable forwards, the one-month contract was at 61.66, while the three-month was at 62.65.

(Editing by Prateek Chatterjee)