Indian rupee vaults above 42/dlr, policy eyed

(Updates to early deals)

MUMBAI, July 24 (Reuters) - The Indian rupee jumped beyond 42 per dollar to a two-month high on Thursday as falling oil prices eased concerns about the country's trade deficit.

At 9:42 a.m. (0412 GMT), the partially convertible rupee <INR=IN> was at 41.84/85 per dollar, its highest since May 12 and 0.6 percent above Wednesday's close of 42.09/10. It has climbed 2 percent in the last two days.

"It is just sentiment and offshore-related flows but there should be some importer buying coming in at these levels," said a senior dealer at a private bank.

Oil prices fell to a seven-week low below $125 a barrel on Thursday amid a view U.S. energy demand has reached a tipping point, sending investors back into Asian stocks for the fourth consecutive day. [ID:nHK352496]

India imports most of its oil and the soaring price of the commodity has put pressure on the country's trade deficit.

The government won a vote of confidence in parliament late on Tuesday, ensuring the survival of the ruling coalition and of a civilian nuclear deal with the United States. [ID:nBOM109499].

Foreigners have sold more than $7 billion in stocks so far in 2008 and analysts said the government's win meant it would push on with long-awaited banking reforms which may attract capital inflows and push the rupee higher.

One-month offshore non-deliverable forward contracts were quoted at 42.18/42.28 per dollar, weaker than the onshore rate.