Indian rupee trims early losses, outlook bearish

(Updates to close)

By Saikat Chatterjee

MUMBAI, May 20 (Reuters) - The Indian rupee trimmed early losses on Tuesday after a sharp slide to 13-month lows last week was seen by some investors as overdone, but the outlook remained bearish because of high oil prices.

The partially convertible rupee <INR=IN> ended at 42.635/640 per dollar, 0.23 percent weaker than Friday's close of 42.53/54. Markets were closed on Monday for a holiday.

The rupee hit a low of 42.92 on Friday, its weakest since mid-April 2007.

"The dollar/rupee buying by oil refiners was not sustained and some selling at higher levels by exporters and banks pushed it down," said V. Rajagopal, head of currency trading at Mumbai-based Kotak Mahindra Bank.

Oil CLc1, India's biggest import, has surged to record highs near $128 a barrel, raising the risk of the trade deficit widening. India imports more than two-thirds of its oil needs, and crude refiners are the biggest buyers of dollars.

Standard Chartered said it expected the rupee to remain weak due to slowing growth and widening trade deficit, while Goldman Sachs sees next support at 43.82. A Reuters poll showed investors have increased their short positions in the rupee and other Asian currencies. See [ID:nSP270134].

The rupee has lost 5 percent against the dollar this month and nearly 8 percent this year, weighed down by signs of slowing growth, high oil prices and 3-1/2-year inflation.