Rupee weaker; inflation data watched

An employee arranges Indian currency notes at a cash counter inside a bank in Agartala February 18, 2010.

MUMBAI (Reuters) - The rupee was weaker on Tuesday on worries over foreign fund outflows as risk sentiment was dented with Moody's warning it may cut its triple-A rating for France, Britain and Austria.

At 9:59 a.m. (0429 GMT), the rupee was at 49.28/29 to the dollar, compared with Monday's close of 49.19/20. It has traded in a 49.2750 to 49.4200 band so far in the session.

Asian shares and the euro fell after the Moody's warning reminded investors that Europe is still deeply mired in a debt crisis despite Athens' steps to avoid a disorderly default.

The direction of the rupee is expected to be influenced by the January inflation data, due around 0630 GMT, traders said.

"The inflation data is key today because a lower print could lift the local shares and aid the rupee," said Ashtosh Raina, head of forex trading at HDFC Bank.

Dealers expect the rupee to trade in a wide 49.00 to 49.50 range on Tuesday if the inflation number surprises or demand from oil refiners rise in late session.

The BSE Sensex was subdued in early trades as investors turned cautious about the global economy.

Headline inflation rate is expected to have cooled to 6.60 percent year-on-year in January from 7.47 percent in December, helped by easing food prices, a Reuters poll showed.

The central bank could step in to support the rupee if it slides sharply, traders said. The Reserve Bank of India sold more than $9 billion in the spot and forwards market in December, its biggest intervention in nearly three-and-half years.

One-month offshore non-deliverable forward contracts were at 49.64.

In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange were all around 49.5, on total volume of $662 million.

(Reporting by Shamik Paul; Editing by Subhadip Sircar)