India rupee comes off 13-1/2-mth low on cbank hand

(Updates to close)

By Saikat Chatterjee

MUMBAI, May 22 (Reuters) - The rupee hit a 13-1/2-month low on Thursday and then pulled back as dealers said state-run banks sold dollars heavily, probably on behalf of the central bank and prompted investors to trim their long dollar positions.

The partially convertible Indian rupee <INR=IN> ended at 42.96/97 per dollar, off an intraday trough of 43.21, a level it last tested in early April 2007. It was, however, 0.32 percent weaker than Wednesday's close of 42.83/84.

"We have seen some large state-run banks selling dollars around higher levels, possibly on behalf of the central bank but it is difficult to say conclusively it was for them," said Ashit Parekh, head of FX trading at IndusInd Bank.

The dollar selling started around 43.21 and the central bank is estimated to have sold about $100 million to $150 million, dealers said. It would be the first time the central bank had sold dollars since March, according to data.

The Reserve Bank of India has been a net buyer of dollars for more than two years. In the first quarter of 2008, it had bought $20.3 billion.

The central bank does not comment on the daily movements in the foreign exchange market, a spokeswoman said.

Analysts believe the central bank's intervention may have been to prevent the rupee's sharp fall rather than to defend a particular level.