Rupee gains 5.9 pct in qtr, best in 2 yrs

A Kashmiri shopkeeper displays a garland made of currency notes at a market in Srinagar in this May 20, 2008 file photo.

MUMBAI (Reuters) - The Indian rupee rose 5.9 percent in April-June, clocking its biggest quarterly rise in two years, on robust foreign flows into the stock market and traders said next Monday's budget would set the trend for the coming months.

The partially convertible rupee ended at 47.90/91 per dollar on Tuesday, about 0.4 percent stronger than the previous close of 48.10/11. In early trade, it had hit 47.8350, its highest since June 17.

Foreign portfolio flows of a net $7.3 billion into local shares since mid-March have helped the rupee to rebound from a record low of 52.2 hit in early March.

The main share index leapt 49.3 percent in April-June, its biggest quarterly gain in 17 years, on signs of an economic recovery.

However, the rupee fell 1.65 percent in June, its steepest drop since February, as foreigners took profits and pulled out about $650 million over the past two weeks.

Goldman Sachs said it expected the rupee to strengthen over the next 12 months to 44.7.

The rupee was supported on Tuesday by the dollar's weakness against major currencies.

"The dollar's weakness pushed exporters to sell the dollar. Corporates' dollar inflows were also strong," a senior trader with a foreign bank, said.

"Exporters see little downside for the rupee beyond 48. The view is a stronger rupee in July," he said.

The dollar weakened across the board on Tuesday, supported by an easing in risk aversion after gains in stock markets and oil prices reflected an upbeat view on the prospects of global economic recovery.

The dollar index, a gauge of the U.S. unit's performance versus majors, was down 0.3 percent at 1130 GMT.

Dealers said they would be watching the government's updated budget on Monday for cues on more reform measures, which could lead to more capital inflows.

Central bank data on Tuesday showed the current account deficit for the fiscal year ended March widened to $29.82 billion, or 2.6 percent of gross domestic product.

In 2007/08, the deficit was $17.03 billion, which was 1.5 percent of GDP.