Re rises as moves to ease credit crunch spur stocks

Re rises as moves to ease credit crunch spur stocks

Mumbai: The rupee rose for a second day as steps by Asian countries to ease the global cash squeeze buoyed stocks and spurred optimism that demand for riskier emerging market assets will increase.

The currency has rebounded almost 1% from a record low of 50.29 a dollar it had touched two days ago. The MSCI Asia Pacific Index of stocks climbed 3.7% on speculation Japan will cut interest rates and China will make efforts to boost local shares to revive confidence in financial markets. The US Federal Reserve may lower its benchmark interest rate to 1% on Wednesday and signal further reductions.

“Authorities world over are taking effective steps to avoid fears of recession and equity markets are responding positively," said Jayant Chiney, a treasurer at Bank of India in Mumbai. “The rupee will be supported in the near term."

The rupee rose 0.4% to 49.675 per dollar at the 5pm close in Mumbai, from 49.8575 on 27 October, according to data compiled by Bloomberg. The currency was not traded on Tuesday due to a holiday. Markets are shut on Thursday for a holiday.

The Bombay Stock Exchange’s benchmark index, the Sensex, gained 0.4% after surging 5.9% on Tuesday in a special one-hour trading session held due to the holiday.

The Bank of Japan may lower interest rates to 0.25% on 31 October, the Nikkei English News reported on Wednesday, without citing any sources. China on Wednesday cut interest rates for the third time in two months to stimulate growth as the global financial crisis undermines the world’s fourth largest economy.

The measures by Japan and China would add to those already taken by other nations, including the US government’s $700 billion (Rs34.9 trillion) bank rescue package and coordinated interest-rate reductions by central banks to boost lending in money markets.

The rupee pared gains on speculation importers including Indian Oil Corp. Ltd, the nation’s largest refiner, purchased dollars at a cheaper rate after the local currency rebounded from an all-time low.

“Importers have increased dollar purchases considering its shortage and the fact that it traded for a while below Rs50 per dollar," said Ravindra Babu, a currency trader at state-owned Andhra Bank in Mumbai. “Dollar demand from Indian importers is strong and that will keep the rupee under pressure to decline."

The rupee has weakened about 21% this year, the second worst performer after the South Korea won among the 10 most active Asian currencies.

Offshore forward contracts that allow traders to bet on the rupee’s value in a year indicate an implied rate of 55.30 a dollar, stronger than 57.11 on 27 October.