India rupee rebounds after hitting latest record low

* Rupee recovers after hitting record low at 54.91

* RBI's Gokarn says cenbank to continue currency defense

* RBI could still target USD demand from oil importers-traders

By Subhadip Sircar

MUMBAI, May 18 (Reuters) - The Indian rupee recovered after earlier dropping to its third consecutive daily record low, tracking a recovery in domestic stocks and after a central bank deputy governor said the Reserve Bank of India would continue to defend the currency.

RBI's Subir Gokarn said the central bank will continue with its intervention as well as administrative measures to support the local currency, which has fallen over 10 percent since its February peak.

The rupee also recovered despite the battering of other global risk assets on Friday as it approached the psychologically key level of 55.00, and as traders speculated the RBI was still liable to implement measures after already targeting deposits and exporters' foreign currency accounts.

"I think the rupee is oversold. There cannot be an unidirectional move. I expect the RBI to come in with some measures which will pull back the rupee to 54-53.50 levels to the dollar," said Subramanian Sharma, director at Greenback Forex.

The USD/INR settled at 54.42/44 per dollar on Friday compared to Thursday's close of 54.48/49, according to State Bank of India closing data.

The rupee had started the day on a much weaker footing, having hit a new record low of 54.91 earlier in the session, though gains in the main stock indexes after strong earnings from State Bank of India helped the local unit as well.

No actual intervention from the central bank was spotted by dealers on Friday, though traders speculated the RBI could open a window for oil companies to buy dollars directly from the central bank.

Traders estimate demand from state-run oil firms to be about $400-$500 million on a daily basis, forming a substantial chunk of daily market demand.

Still, more measures from the RBI are expected after the rupee has hit record lows in the previous three sessions, surpassing the previous all-time lows hit in December.

Despite the central bank's best efforts, traders say the rupee may see more falls if global risk aversion continues, given India also faces steep challenges at home, primarily in the form of a widening current account deficit.

The rupee has fallen 3.1 percent so far in May, despite foreigners being net buyers of $357 million in local stocks and bonds during the period.

The one-month offshore non-deliverable forward contracts were at 54.78.

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 54.54 on a total volume of $4.8 billion. (Reporting by Subhadip Sircar)