Re sheds gains as banks cover $ short positions

The rupee erased all its gains to end steady today, as dollar demand from importers led banks to cover their earlier sold positions.

A weak dollar overseas, in addition to strong dollar sales by exporters, had helped the Indian unit to climb to a new nine-year high of 40.5300 per $1 earlier in the day.

But the domestic unit gave up these gains and ended at 40.8600 per $1 from 40.8550 per $1 on Friday.

"After the rupee touched a high of 40.5300 per $1, importers purchased dollars. In the end, banks also bought their over-sold positions," said a dealer at Andhra Bank.

The rupee opened firm, as the dollar had weakened against major currencies after the US employment data released on Friday was lower-than-expected, leading to belief that the Federal Reserve may slash interest rates.

"The dollar was weaker versus most of Asian currencies, and also stock markets were expected to open higher today," said a dealer with an US bank.

Expectations of foreign funds' investments in Indian stock markets led many banks to go short on dollars.

A few other banks booked profits by buying dollars at a lower rate in overseas markets and selling it a higher rate locally.

An arbitrage opportunity of 12-15 paise was witnessed in near tenures, adding to dollar supply, dealers said.

However, strong demand from importers and some oil companies absorbed the supply. A couple of state-run oil companies were among the major dollar buyers today, dealers said.