Rupee weakens; govt seen keen to attract dollar flows

MUMBAI (Reuters) - The rupee weakened on Monday, tracking weaker offshore rates, as sustained foreign selling in equities continued to raise concerns about the gaping current account deficit.

Finance Minister P. Chidambaram met foreign investors on Saturday to seek suggestions on attracting dollar inflows, according to local media reports.

The reports quoted Secretary for Department of Financial Services Rajeev Takru as saying the government could announce some measures in 8-10 days.

India urgently needs to attract capital as foreign institutional investors (FIIs) have sold about $4.2 billion in bonds this year. Adding to concerns, overseas funds are also shedding some of their stock positions, having sold about $750 million in equities over the previous six sessions.

Still, traders remained sceptical about whether India can attract foreign capital to help narrow a record high current account deficit despite the surge in debt yields, as growth is stuck at a decade low while an expected wind down in U.S. monetary stimulus is expected to hit emerging markets.

"FII debt investors in India will come back only if there is currency stability but not because of a little higher interest rate," said Samir Lodha, managing director at QuartArt Market Solutions.

The partially convertible rupee fell more than 1 percent to 64.20/21 per dollar at 11 a.m. (0530 GMT) compared to 63.20/21 on Friday. The unit has moved in a range of 63.65 to 64.26 so far during the day.

It fell to a record low of 65.56 last week, and has lost more than 14 percent so far this year.

Monday's fall tracked the one-month offshore non-deliverable forward rate, which was being quoted at 64.92 per dollar, compared to the onshore one-month forward rate of 64.75.

Traders also said importer demand for dollars was pressuring the rupee although they expected that to wane through the session, allowing some recovery in the domestic currency.

"Oil companies and importers who missed the late down move in the dollar on Friday are buying dollars today. However, we should see selling from current levels," said Vikas Babu Chittiprolu, a senior foreign exchange dealer with state-run Andhra Bank.

The outlook for the rupee will likely depend on global developments in the near-term, especially by movements in emerging markets, traders added.

The Indonesian rupiah hit a fresh four-year low on Monday on sustained worries about another country with a large current account deficit.

(Reporting by Swati Bhat; Editing by Kim Coghill)