Rupee weakens ignoring govt's FDI steps

By Subhadip Sircar

MUMBAI (Reuters) - The rupee posted slight falls on Wednesday as continued dollar demand from importers eroded early gains from the government's decision to relax foreign direct investment rules in various sectors.

The RBI was suspected selling dollars in late trade via state-run banks from around 59.50 levels to push up the rupee, several dealers said.

The rupee's weakness, in spite of strong steps taken by the Reserve Bank of India late on Monday to support the currency, shows demand for dollars remains strong, overriding the central bank's attempt to stamp down on speculation.

India relaxed foreign direct investment (FDI) rules on Tuesday in a broad swath of industries including telecoms, to prop up a sliding currency and increase confidence about the record high current account deficit.

Yet, investors feel that such measures will take time to take effect and would not yield immediate inflows.

"The rupee has barely gained since the central bank's steps and the government's FDI measures. The reversal of tide can happen when real flows come into the market through an overseas bond sale," said Param Sarma, chief executive at NSP Forex.

"The RBI can also look at directly supplying dollars to oil refiners to take out a bit of supply," he said.

The partially convertible rupee closed at 59.34/35 per dollar, against its previous close of 59.31/32. It rose to 59.05 in early trade on the government's steps but later fell to as low as 59.57.

The rupee has gained only 0.9 percent since the close of trade on Monday after which the central bank resorted to indirect monetary tightening, but the bonds and rate markets have been roiled.

In the offshore non-deliverable forwards, the one-month contract was at 59.69 while the three-month was at 60.53.

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 all closed around 59.60 with a total traded volume of $2.6 billion.

(Editing by Subhranshu Sahu)