Indian rupee above lows as oil dips, stocks rise

(Updates to early deals)

MUMBAI, May 15 (Reuters) - The Indian rupee held above 13-month lows on Thursday as a dip in the oil price and share market gains slowed the heavy dollar selling that had pushed it down as much as 5 percent this month.

At 10:42 a.m. (0512 GMT), the partially convertible rupee <INR=IN> was at 42.38/39 per dollar, stronger than Wednesday's close of 42.45/46 per dollar. The rupee fell as far as 42.67 on Wednesday, its lowest since mid-April 2007, Reuters data showed

The rupee has fallen more than 7 percent against the dollar this month, a sharp turnaround from its 12 percent-plus rise last year.

"The dollar-buying spree seems to be absent from oil importers, and the market is catching its breath after a hectic few days," said K.N. Reghunathan, a currency trader at Mumbai-based Union Bank of India.

Oil CLc1, India's biggest import, traded below $124 a barrel, after touching a record near $127 on Tuesday.

Oil refiners are the biggest buyers of dollars in Indian markets, and rising oil prices increase their demand for dollars and also put pressure on the trade deficit. The country's oil import bill shot up by more than a third in 2007/08.

The stock market was up more than 1 percent in early deals. Traders were waiting to see sustained gains in the market, as that could trigger renewed interest from foreign investors and provide a boost to the rupee.

Foreign funds have been net sellers of about $3 billion of stocks in 2008, with the main index down 16 percent this year.