Indian rupee climbs to three week peak, oil key

* Rupee ends at three week peak as oil declines * Policy review and oil prices are further triggers (Updates to close)

By Saikat Chatterjee

MUMBAI, July 18 (Reuters) - The Indian rupee <INR=IN> closed at its highest in three weeks on Friday as banks sold the dollar after oil prices fell further away from record highs, calming concerns of a widening trade deficit.

A strong stock market also boosted the rupee.

The partially convertible rupee ended at 42.76/77 per dollar, a shade stronger than Thursday's close of 42.81/82 and its strongest close since June 26.

It hit a 15-month low of 43.50 earlier this month. For the week, the rupee ended up a quarter of a percentage point.

"Rupee movements are closely mirroring oil prices and there was some importer buying around 42.70 levels, which kept dollar/rupee in a 42.65-42.85 band for the day," said Agam Gupta, head of currency trading at Standard Chartered Bank in Mumbai.

Oil CLc1, India's biggest import, was trading a little around $131 a barrel, well below the record $147.27 hit last week. See [O/R]. India imports a majority of its oil needs and higher global prices inflate its trade deficit.

Indian shares rose 4 percent on Friday to their highest close in more than a week, led by banks, as slower-than-expected inflation eased concerns of further monetary tightening. Software firms fell on a cautious outlook. [.BO].