MUMBAI, May 30 (Reuters) - The Indian rupee approached its record low against the dollar on Wednesday as oil importers ramped up demand for the greenback ahead of the end of the month, while global risk assets were hit by rising worries about Spain.
Though global cues are providing a trigger, traders said the rupee was also being weighed down by deep concerns about India's fiscal and economic challenges, and doubts about slowing policy reforms.
Traders were on alert about central bank intervention should the rupee test its record low of 56.40 to the dollar hit on Thursday.
That fall was the culmination of seven consecutive daily all-time lows against the dollar, though the local currency had recovered since then to as high as 55.01 on Monday.
"USD/INR made a definite move-up once the last technical retracement level of 56.05 was breached. However, today's upmove is in line with the euro's fall and I don't expect the RBI to come in at these levels," said a senior trader with a private bank.
At 10:27 a.m., the partially convertible rupee was at 56.09/11 per dollar, weaker than its 55.67/68 close on Tuesday.
Traders cited strong dollar demand from oil importers looking to meet their commitments at the end of the month.
Global risk aversion also weighed as the euro hit a two-year low on Wednesday, hurt by worries about Spain's soaring borrowing costs and expectations that more spending may be needed to support its ailing banks.
India's move to allow foreign retail investors to buy up to $1 billion in local corporate bonds on Tuesday was seen as too mild to significantly bolster capital inflows and support the shaky rupee.
"The INR is unlikely to benefit from news that policy makers almost doubled the number of countries eligible for the QFI program and allowed foreign investors to open INR accounts onshore, as the steps will take time to be implemented," said Dariusz Kowalczyk, senior economist at Credit Agricole.
He was referring to the qualified foreign investor programme under which the government will allow retail investors from overseas to buy corporate bonds.
The RBI had been intervening frequently this month, in both forwards and spot markets, and adopted measures such as forcing exporters to convert half of their foreign currency holdings into rupees.
However, the actions have failed to have much of an impact. (Reporting by Subhadip Sircar; Editing by Rafael Nam)