Rupee posts biggest single-day loss in 1-1/2 month

The rupee posted its biggest single-day loss in a month and half on Wednesday, hurt by broad dollar gains against major currencies, while weak local shares bogged down by a Moody's downgrade of the banking system also added to the downward bias.

Traders said demand for dollars by a large corporate and for defence-related payments also weakened the unit.

The partially convertible rupee closed at 50.1750/1850 per dollar after hitting 50.1825, a level last seen on Oct. 21, and 1.4 percent weaker than its previous close of 49.4750/4850.

This is the rupee biggest one-day fall since a 2.5 percent decline on Sept. 21, which was its biggest fall in nearly three years.

"The equity markets turned negative and euro came off pushing the rupee lower," said N.S. Venkatesh, treasurer at state-owned IDBI Bank.

He expects the unit to trade in a range of 49.50 to 50.50 over the next couple of weeks.

The unit moved in the wide range of 49.3950- 50.1825 per dollar in the day, with traders cautious ahead of a market holiday on Thursday.

The main 30-share BSE index ended down 1.18 percent at 17,362.10 points -- its lowest close in two weeks.

Financials led the decline after ratings agency Moody's lowered its outlook on the country's banking system, citing slowing growth and concerns about asset quality.

The euro was at $1.3643, compared with $1.3770 when the rupee closed on Tuesday, while the index of the dollar against six major currencies was at 77.460 points versus 76.948 points.

The euro fell against the safe-haven U.S. dollar and Japanese yen on Wednesday as the euro zone's escalating debt crisis saw investors such as macro funds step up sales of the single currency after Italy's 10-year bond yield hit 7 percent.

"There was steady import-related dollar buying today by corporates, oil companies and defence firms," a dealer with a private bank said.

Oil is India's biggest import and refiners are the largest buyers of dollars in the local currency market.

Dealers said the rupee was likely to continue to weaken in the near term with the broad trend towards safe-haven assets including the dollar because of euro zone and trade deficit issues.

"A breach of the 50.20 level would push the rupee down to 50.50 with the next target then being 52.00," said Ashtosh Raina, head of foreign exchange trading at HDFC Bank.

Trade deficit in October is seen at $19.6 billion, the highest in four years, the country's trade secretary said on Tuesday, citing provisional data. At this rate, the trade deficit for the year could breach $150 billion, Rahul Khullar said.

The one-month onshore forward premium was at 25.25 points from 24.75 points on Tuesday, the three-month was at 65.25 points from 65 and the one-year was at 167.75 points from 178.75.

One-month offshore non-deliverable forward contracts were quoted at 50.17, at par with the onshore spot rate.

In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange were at 50.35, on the United Stock Exchange they were at 50.3225, while on the MCX-SX they were at 50.3125. The total volume was at $3.64 billion.