India rupee ends up; trade deficit to pressure unit

* Local shares up more than 1 pct, boost foreign inflow hopes

* Trade deficit to pressure rupee: traders

* India July trade deficit biggest in nearly two years

(Updates to close)

By Jeanette Rodrigues

MUMBAI, Sept 1 (Reuters) - The Indian rupee retreated from a more than one-month low on Wednesday, boosted by firm domestic shares and supported by losses in the dollar against major currencies overseas.

The partially convertible rupee INR=IN ended Wednesday at 46.805/815 per dollar, stronger than 47.07/08 at close on Tuesday when it had fallen to 47.0950, its weakest since July 22. In August, the rupee had declined 1.4 percent.

"In the short-term I see the rupee under pressure and it may again touch 47 because of the unsustainable trade deficit," said Ashutosh Khajuria, head of treasury at IDBI Bank in Mumbai.

"Untill we see a real positive growth in exports, at least 4-5 percent above the imports growth rate as imports already have a high absolute number, the rupee will be pressured," he added.

India's trade deficit swelled in July to its biggest level in almost two years, putting further pressure on the current account and on the need for India to attract capital inflows to avoid pressure on its currency. [ID:nSGE680054]

An Indian government panel has recommended removing limits on foreigners' purchases of rupee-denominated corporate bonds, which it said would help deepen the debt market without compromising financial stability. [ID:nSGE67U0IR]

Indian shares .BSESN began the month on a positive note led by software firms and closed Wednesday 1.3 percent higher, their best gain in 10 weeks, tracking regional markets which were boosted by a Chinese manufacturing rebound. [.BO]

Shares provide cues on the direction of foreign fund flows which determine the rupee's fortunes to a large extent. So far this year, foreign funds have purchased shares worth $12.8 billion in addition to 2009's record $17.5 billion purchases.

The dollar fell versus a basket of currencies on Wednesday as upbeat data from China and Australia revived shaky equity markets and gave a boost to risk sentiment. [USD/]

At 6:04 p.m. (1234 GMT) the index of the dollar versus six majors was down 1 percent. Other Asian currencies also rose versus the U.S. unit. [EMRG/FRX]

One-month offshore non-deliverable forward contracts PNDF were quoted at 46.98, weaker than the onshore spot rate.

In the currency futures market INRFUTURES, the most traded near-month dollar-rupee contracts on the National Stock Exchange and MCX-SX were at 46.9925 and 46.9975 respectively. (Editing by Surojit Gupta)