Indian rupee falters on foreign outflow fears

MUMBAI May 8 (Reuters) - The Indian rupee fell on Tuesday on worries foreign investors would not be swayed by the government's move to address their concerns over taxation, sparking a tumble in domestic stocks and fears of continued outflows.

The falls in the afternoon session prompted the Reserve Bank of India to step in when the rupee weakened to 53.30 against the dollar, according to four dealers, continuing a series of interventions since last week.

The rupee erased the gains on Monday when the government announced it would postpone controversial tax rules for foreign investors and would shift the onus of proving evasion on tax authorities.

Despite the moves, foreign investors sold a net of 10.3 billion Indian rupees ($194.69 million) in domestic stocks on Monday and Tuesday, according to provisional data from the National Stock Exchange.

"The initial euphoria about the GAAR is done. The market is now looking at actual flows," said Uday Bhatt, senior manager of dealing with state-run UCO Bank.

The rupee fell 0.4 percent against the dollar to 53.12/13, weakening from its Monday close of 52.9050/9150.

The rupee is fast approaching a record low of around 54.30 to the dollar, weighed down by worries about India's fiscal and economic challenges, and increasingly, that foreign investors will exit from the country.

Reserve Bank of India deputy governor Subir Gokarn said on Tuesday a widening current account deficit and a negative balance of payments are still worries for the central bank.

"We acknowledge that India is currently running a large current account deficit that requires capital flows to fund. Therefore, the global risk environment is critical to its performance," Nomura said in a note on Tuesday.

The one-month offshore non-deliverable forward contracts were at 53.45.

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 all ended around 53.38 on a total volume of $5.23 billion. ($1 = 52.9050 Indian rupees) (Editing by Rafael Nam)