Rupee trims losses as stx rebound, RBI seen

By Swati Bhat

MUMBAI (Reuters) - The rupee trimmed losses to close at the day's high on Thursday helped by dollar selling by the Reserve Bank of India (RBI) and a recovery in the local share market, which slumped more than 5 percent in early trade.

The partially convertible rupee ended at 46.42/43 per dollar, still 0.2 percent weaker than 46.33/35 at close on Wednesday. On Tuesday, it fell to 46.99, its lowest since July 2006, according to Reuters data.

"Stocks turned positive and with steady dollar selling by the RBI, more inter-bank participants and corporates are now looking to play from the sell-side," a senior dealer with a private bank said.

The BSE Sensex rebounded from sharp early losses on Thursday and snapped a seven-day losing streak, as domestic funds stepped in to pick bargains. But the outlook remained shaky on deepening global financial woes.

However, dollar demand from oil firms continued to pressure the rupee downwards, dealers said. Refiners, the biggest buyers of dollars in the local currency market, have been trying to meet import requirements, as oil prices have started rising again.

Oil, India's biggest import rose above $99 per barrel as global markets rebounded and the U.S. energy sector worked to restart operations shut by Hurricane Ike.

Dealers said offshore-related dollar demand from banks also hurt the currency. Banks generally buy dollars locally and sell offshore to take advantage of the high price differential.

One-month offshore non-deliverable forward contracts were quoting at 46.79/89, 0.8 percent weaker than the onshore spot rate, providing a good arbitrage opportunity.