Mumbai: The rupee rose the most in three weeks on speculation global funds will increase purchases of Asian stocks after China cut its key lending rate by the most in 11 years to spur growth.

The rupee climbed to the highest since 14 November as the benchmark share index completed the week’s best advance after the People’s Bank of China cut its lending rate by 1.08 percentage points to 5.58%.

The rupee also climbed on speculation NTT DoCoMo Inc., Japan’s biggest mobile phone operator, brought in part of the $2.7 billion it agreed this month to pay for 26% of Tata Teleservices Ltd.

“The rupee has gained as flows seem to be coming in from some hedge funds, possibly for equity purchases," said Paresh Nayar, chief foreign-exchange and bond trader at Development Credit Bank Ltd in Mumbai. “Some of the Tata Teleservices money is also said to be coming in."

The rupee advanced 1.1% to 49.435 per dollar in Mumbai, according to data compiled by Bloomberg. That is the biggest gain since 4 November.

The Bombay Stock Exchange’s Sensitive Index, or Sensex, climbed 3.8%. The index is trading near the cheapest levels relative to earnings in at least five years.

The price-earnings valuation of the Sensex has fallen to 9%, near the lowest since Bloomberg started compiling such data in 2003, from a record high of 31.1 reached in January.

China’s central bank also lowered the reserve requirement for the biggest banks to 16% from 17%, effective 5 December. The requirement for smaller banks will fall to 14% from 16%. The cuts are aimed “at ensuring sufficient liquidity in the banking system, and to promote steady loan growth," the bank said in a statement.

Templeton Asset Management Ltd, Aberdeen Asset Management Ltd and F&C Management Ltd are buying Indian stocks as strategists predict a rebound in the rupee, after it fell more than 20% this year.

The median forecast of 17 strategists in a Bloomberg survey is for the currency to strengthen to 48.5 by the end of June. “Investors are speculating the global financial crisis is nearing an end and some stability will return to the financial markets soon," said Ravindra Babu, a foreign-exchange trader at state-owned Andhra Bank in Mumbai. “The rupee will continue its rising streak in the near term."

Offshore forward contracts showed traders scaled back bets for how far the rupee will weaken in the next month.

Non-deliverable contracts showed an implied rate of Rs49.78 to the dollar, versus 50.5 on Tuesday.

Forwards are agreements in which assets are bought and sold at current prices for future delivery. Rupee forwards traded overseas are non-deliverable, meaning they are settled in dollars rather than the local currency.