* Rupee posts fifth consecutive weekly fall
* RBI may have stepped in around 53.65 levels-dealers
* Others see dollar sales from large engineering firm
By Subhadip Sircar
MUMBAI, May 4 The Indian rupee staged a late recovery on Friday that sparked debate about central bank intervention, but is still within reach of a lifetime low after posting a fifth successive week of falls on rising fears of foreign outflows.
The rupee, already reeling under the impact of a widening capital account deficit, a slowing economy, and fears about policy reforms, is also being undone by uncertainty about taxation of foreign investors.
The falls in the rupee have put markets on heightened alert about intervention, after the Reserve Bank of India was seen selling dollars in the previous two sessions.
The local unit recovered most of the day's losses in afternoon trading on Friday, but views were split about whether the central bank had again stepped in.
Dealers said the evidence was not clear cut, pointing to dollar sales of about $200 million from a large engineering company at around 53.80/85 levels late in the session.
"It seems that RBI came in to supply the market at around 53.65 levels. But the rupee's recovery was largely due to squaring off of positions by foreign banks ahead of U.S. non-farm payrolls and selling by a large corporate," said the chief dealer with a foreign bank.
The rupee settled at 53.47/48 after falling to as low as 53.95 in intraday trade. It had closed at 52.96/97 on Thursday.
The currency remained on the back foot for most of the session after India said it would review its tax treaty with Mauritius, sending the main stock index down 1.8 percent given most of the foreign portfolio investment is routed through the small island country.
Next week could prove important given the finance ministry will submit to parliament the controversial bill containing the taxation proposals.
The outlook for the rupee remains weak, with traders largely expecting the currency to touch the record lows of around 54.30 hit in December.
India's limited foreign exchange reserves and its acute liquidity deficit means the country may not be able to defend the rupee for long.
"INR remains in the doghouse and continues to be a touch-me-not due to the adverse balance of payments," Rajeev Malik, senior economist at CLSA, wrote in a report.
The one-month offshore non-deliverable forward contracts were at 53.81.
In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all ended around 53.77 on a total volume of $5.6 billion. (Editing by Rafael Nam)
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