Indian rupee hits 1-week high as shares rise

(Updates to early trade)

MUMBAI, July 7 (Reuters) - The Indian rupee climbed to its highest in a week on Monday, bolstered by hopes a rise local shares would stem the outflow of foreign funds but high oil prices could limit the gains.

At 10 a.m. (0430 GMT), the partially convertible rupee <INR=IN> was at 43.09/10 per dollar, compared with Friday's close of 43.15/16. It hit a 15-month low of 43.50 last week.

"The rupee is deriving strength mainly from the stock market but the political situation is fluid and oil prices are still holding up," a dealer with a private sector bank said.

The 30-share BSE index rose more than 2 percent early, as concerns the government's survival could be under threat if its leftist allies withdrew over a nuclear deal eased after a regional party pledged support.

Oil CLc1, India's biggest import, was trading below $144 a barrel, close to a record high hit on Thursday. [O/R].

High oil prices could increase demand for dollars and widen India's trade deficit, which hit a record $10.8 billion in May.

Foreign funds have sold a net $6.6 billion worth of Indian stocks so far this year. In 2007, they had bought a record $17.4 billion, helping the benchmark index rise 47 percent. (Reporting by V. Ramakrishnan; Editing by Ranjit Gangadharan)