Indian rupee falls to near 43/dlr after inflation

(Updates to midday trade)

By Anurag Joshi

MUMBAI, May 16 (Reuters) - The Indian rupee fell to a 13-month low on Friday after data showing inflation at a new 3-½ year high heightened worries about slowing growth, record oil prices and the risk of foreign investors withdrawing funds.

At 2:18 p.m. (0848 GMT), the partially convertible rupee was at 42.81/82 per dollar, off an intraday low of 42.92, which was it weakest since April 12, 2007, according to Reuters data. The rupee had closed at 42.75/76 on Thursday.

At its low, the rupee was down 8.2 percent in 2008. It had risen more than 12 percent against the dollar in 2007.

"Inflation hit sentiment hard. Particularly, the major revision for March's inflation number," a senior dealer with a foreign bank said.

"That raised worries about FIIs pulling money from the stock market because high inflation is bad news for the economy," he added, refering to foreign institutional investors.

Data on Friday showed annual inflation at 7.83 percent on May 3, a 3-½ year high, and the provisional rate for March 8 was revised up to 7.78 percent from 5.92 percent. [ID:nDEL225302]

Oil CLc1, India's biggest import, hit record highs near $127 a barrel this week, 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.

Foreign investment flows are a key influence on the rupee. Overseas funds have sold a net $2.9 billion of Indian equities so far in 2008, a sharp turnaround from record net purchases of $17.4 billion last year. (Reporting by Anurag Joshi; Editing by John Mair)