Indian rupee rises as exporters cash in, oil eyed

(Updates to early trade)

MUMBAI, May 9 (Reuters) - The Indian rupee moved away from one-year lows on Friday as exporters sold dollars to lock in profits on the local unit's fall, but traders said record oil prices kept sentiment cautious on worries of a widening trade deficit.

At 10:25 a.m. (0455 GMT), the partially convertible rupee <INR=IN> was at 41.63/64 per dollar, 0.3 percent stronger than the previous close of 41.76.77. It hit an intraday low of 41.80 on Thursday, its lowest since April 20, 2007.

"Exporters see this as the best available opportunity to cash in on a favourable exchange rate," a trader with a state-run bank said.

Traders said dollar buying by oil refiners subsided on Friday, which also helped the rupee.

"But one can't rule out more dollar buying by oil companies," the trader said.

Oil CLc1, India's biggest import, hit a record high not far from $125 per barrel on Friday. India imports 70 percent of its oil needs, and crude refiners are among the biggest Indian buyers of dollars.

The higher cost of oil was one factor behind a 35.5 percent widening in India's trade deficit <INTRD=ECI> to $80.4 billion in the fiscal year ended March.

Traders said a few banks bought rupees locally to take advantage of an arbitrage opportunity in the overseas non-deliverable forward (NDF) <PNDF=> market.

"In the NDF market, the rupee is trading 2-3 paise (0.02-0.03 rupee) above the local market," a foreign bank trader said. (Reporting by Anurag Joshi; Editing by John Mair)