Mumbai: The Indian rupee hit a three-week high on Wednesday, buoyed by the sharemarket’s 2.5% rise and the dollar’s fall to 15-month lows against a basket of currencies, and further gains were expected in the end of 2009.

The partially convertible rupee closed at Rs46.29/30 per dollar, its highest since 20 October and 0.5% stronger than the previous close of Rs46.50/51.

“The rupee appreciated tracking the stocks and the euro’s upward move versus the dollar. Stocks would be the key tomorrow,” a senior dealer with a private bank said.

Shares rose 2.5% to their highest close since 21 October, lifted by renewed optimism on the world economy.

The sharemarket has risen nearly 75% this year, with foreign fund inflows being a key driver. Foreigners have purchased a net $14.5 billion worth of stocks so far this year, after having sold more than a net $13 billion last year.

Traders said they would be watching the dollar against major currencies, especially the euro, for further direction.

The dollar hit a 15-month low against a currency basket on Wednesday as it came under broad selling pressure versus its higher-risk counterparts on the view that the global economy may be improving.

One-month offshore non-deliverable forward contracts were quoting at Rs46.24/34, not far from the onshore spot rate.

Calyon Bank analysts said in a note they expected the rupee to rise to 45.50 by the end of 2009 and to 41 by the end of 2010.

In the currency futures market, the most traded near-month contracts on the National Stock Exchange and MCX-SX closed at Rs46.36 and Rs46.3525 respectively, with the total traded volume on the two exchanges at about $2.8 billion.