Rupee rises as stocks rebound

Rupee rose on Wednesday, recovering from 15-month lows on the back of a 5.4 per cent surge in the stock market, but high crude prices may continue to exert downward pressure on the local unit. The partially convertible rupee ended at 43.17/18 per dollar, off a low of 43.39 and 0.4 per cent stronger than Tuesday's close of 43.34/36,trimming its losses for the year to 8.7 per cent.

On Tuesday, it had weakened as far as 43.50, its lowest since early April 2007. Once the stock market started rallying, banks who were sitting on long-dollar positions started unwinding them.

"The central bank does not seem to be trying to defend any particular level on the rupee now, so it will be directly related to the stock movement and oil prices." Beaten-down Indian shares rose 5.4 per cent on Wednesday, their biggest gain in more than three months, as investors picked up bargains after the market had fallen more than 10 percent in three days, but analysts said high oil prices and political stability were concerns.

Foreign funds bought $43 million of stocks on Tuesday, but are net sellers of $6.5 billion so far this year. Oil, India's biggest import, steadied near $141 a barrel on Wednesday, not far from a record high.

Traders said offshore-related arbitrage dollar buying, which was a major factor in the rupee's 0.7 per cent fall on Tuesday, was barely seen on Wednesday, easing some of the pressure. One-month offshore non-deliverable forward contracts were at 43.62/72 per dollar, weaker than the onshore rate.