Indian rupee edges lower on stocks drop; dlr rise

* Dollar index's rise from earlier lows hurts sentiment

* Traders eyeing stocks for cues on foreign fund flows (Updates to mid-morning)

MUMBAI, Nov 5 (Reuters) - The Indian rupee eased on Thursday, weighed down by a 1 percent fall in local shares and the dollar's gains against major units overseas.

At 10:35 a.m. (0505 GMT), the partially convertible rupee INR=IN was at 47.11/12 per dollar, 0.1 percent below its Wednesday's close of 47.05/06.

"There was some corporate demand in early trade, but there is also a lot of dollar selling in the market which should hold the rupee in a range," said Naveen Raghuvanshi, an associate vice president, at Development Credit Bank.

He said the rupee was expected to volatile in the near term, and could appreciate towards 45.50-46 by the end of March helped by capital inflows and strong fundamentals.

Shares .BSESN fell more than 1 percent in early trade, raising concerns about sustainability of portfolio inflows.

Net purchases of $14.2 billion of shares by foreigners so far in 2009 have been a key factor helping the rupee rise from a record low of 52.2 in early March.

Last year, the rupee had fallen by nearly a fifth on portfolio outflows of more than $13 billion.