Indian rupee climbs as oil retreats, stocks eyed

* Rupee up as lower oil eases pressure on trade deficit

* Traders eye local shares to gauge fund flows
(Updates to early trade)

MUMBAI, July 18 (Reuters) - The Indian rupee <INR=IN>
climbed on Friday, as oil backed further away from record highs
easing concerns of a widening trade deficit.

At 10:50 a.m. (0520 GMT), the partially convertible rupee
was at 42.79/80 per dollar, off a high of 42.66, but stronger
than Thursday's close of 42.81/82. It had hit a 15-month low of
43.50 earlier this month.

L. Subramanian, chief dealer at ICICI Bank, said the fall
in oil prices had lowered arbitrage opportunities to buy
dollars in the domestic market and sell in the offshore market.

"It should trade in a band of 42.68 to 42.75 for the rest
of the session," he added.

The offshore non-deliverable forward contracts PNDF were
at 42.95/43.05.

Oil CLc1, India's biggest import, was trading a little
above $130 a barrel, well below the record $147.27 hit last
week. See [O/R].

India's main share index opened up 1 percent after
lower-than-expected inflation data on Thursday and the drop in
oil prices, but pared gains almost immediately. See [.BO].

Foreigners selling their local portfolio holding has been
weakening a crucial support for the rupee. They have so far
this year sold a net $7.2 billion worth of Indian stocks,
pushing the rupee down nearly 8 percent.

India's annual inflation rate rose to 11.91 percent in
early July, below forecasts and only slightly higher than the
previous week, sending bond yields down on reduced risk of
monetary tightening before a central bank review on July 29.
See [ID:nBOM65219].
(Reporting by Swati Bhat; Editing by Ranjit Gangadharan)