Rupee drops as shares fall, outflow concerns

Rupee drops as shares fall, outflow concerns

Mumbai: The Indian rupee weakened on Monday as early losses in the domestic equity market fueled concerns about capital outflows, but broad dollar weakness may help avert a sharp slide in the currency.

At 10:02am, the partially convertible rupee was at Rs48.55/56 per dollar, off a high of Rs48.24, and weaker than Friday’s close of Rs48.44/45.

Dealers said they were watching the stock market for cues on fund flows. Indian shares fell nearly 1% in line with weak Asian markets and on fears of poor quarterly earnings.

Foreign funds have withdrawn more than $13 billion from Indian shares so far in 2008 after buying a record $17.4 billion last year.

“All cross currencies have strengthened against the dollar. Today’s range may be Rs48.20 to Rs48.80 as it is the year end, there are no other specific clues," said V.Kumar, chief dealer at State Bank of Travancore.

The dollar fell broadly, especially against the Swiss franc, which rose on safe-haven buying after Israel launched air strikes on the Gaza strip for a second straight day on Sunday, traders said.

A rise in oil prices would also put some pressure on the local unit due to month-end demand for the US unit from refiners, dealers said.

Oil prices rose as much as $2 to nearly $40 a barrel after weekend violence flared between Israel and Hamas, reminding traders of the geopolitical risk to crude supplies from the Middle East.