Rupee weakens tracking broad dollar rally; share gains limit fall

By Swati Bhat

MUMBAI (Reuters) - The rupee dropped to a three-week low on Friday while also posting its biggest weekly fall in two months as a sharp sell-off in the euro and broad rally in the greenback hurt amid the absence of any fresh domestic triggers.

The euro fell to a two-week low against the dollar on Friday, extending losses into a fifth straight session as slowing euro zone inflation bolstered expectations of looser monetary policy from the European Central Bank.

The rupee which has been relatively stable over the last couple of months after having seen as much as 20 percent fall to a record low in late August has been boosted mainly by robust foreign fund inflows into the stock market. Foreign funds have bought $16.5 billion worth of shares so far this year.

The BSE Sensex surged to a record high as blue chips rallied on the back of strong foreign buying.

"The huge fall in the euro and a rally in the dollar index have pushed the rupee down today, but 62 is a psychological level which will be a key," said Paresh Nayar, head of foreign exchange and debt trading at First Bank Bank.

"The 61.20 support should hold for next week as well, but the overall range could be wider," he added.

The partially convertible rupee closed at 61.74/75 per dollar compared with 61.50/51 on Thursday. Financial markets will remain closed on Monday for a local holiday.

On the week, the rupee fell 0.5 percent, its biggest weekly fall since the last week of August.

The index of the dollar against six major currencies was up 0.4 percent.

Traders will monitor developments on the global front for near-term cues as there is no data or event due on the domestic front.

In the offshore non-deliverable forwards, the one-month contract was at 61.36, while the three-month was at 63.38.

(Editing by Anand Basu)

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BSE Sensex hits all-time high, doubts abound about rally

By Abhishek Vishnoi and Rafael Nam

MUMBAI (Reuters) - The BSE Sensex surged to a record high on Friday as blue chips rallied on the back of strong foreign buying, marking a remarkable turnaround from two months earlier when the rupee fell to record lows and threatened a crisis of confidence.

The index has been propelled by around $3.5 billion worth of foreign inflows since the Federal Reserve unexpectedly delayed tapering of its monetary stimulus at a meeting on September 18.

The foreign buying comes amid tentative signs the economy may be improving after posting its slowest growth in a decade, though analysts still widely expect challenges ahead as the central bank raises interest rates to curb stubbornly high inflation.

That has made some investors cautious about whether the rally can be sustained.

"I am not too pleased with the way fundamentals are shaping up. This new high is driven by only a handful of stocks which are hopelessly expensive despite fundamentals," said Phani Sekhar, a fund manager of portfolio management services at Angel Broking.

"The liquidity rush is making people accumulate stocks. If fundamentals don't improve or liquidity tapers, then this rally won't have many legs."

The BSE Sensex rose to as high as 21,293.88 points, a 0.6 percent gain for the day, and surpassing the previous all-time high of 21,206.77 points on January 10, 2008.

The index has gained 22 percent since hitting a yearly low on August 28.

But despite the record high, the Sensex still remains Asia's fourth-worst performer this year in dollar terms among the exchanges tracked by Thomson Reuters, with a 2.5 percent fall.

The returns have been hurt by a weak rupee, which hit a record low of 68.85 in late August, that had sparked concerns about a currency crisis in the country.

Analysts say the strong foreign buying reflects in part tentative signs of improvement in the economy. Data on Thursday showed India's infrastructure sector output last month rose at its fastest clip in a year.

Meanwhile, measures to stabilise the rupee undertaken by new Reserve Bank of India Governor Raghuram Rajan, including providing dollars directly to oil companies, have also helped.

Still, analysts expect the economy to stay weak.

The World Bank last month slashed its growth forecast for Asia's third-largest economy to 4.7 percent in the year ending in March, below the decade low of 5 percent in the previous fiscal year.

India's central bank also raised interest rates by a quarter percentage point for a second consecutive month in October to fight accelerating inflation.

Blue chips have been gaining nonetheless. The Nifty rose 0.2 percent, also within sight of a record high that was set on January 8, 2008.

State-owned banks gained for a second consecutive session on Friday on hopes of stabilising asset quality, sending State Bank of India Ltd up 2.3 percent.

Hero MotoCorp Ltd gained 2.3 percent ahead of its October sales later in the week.

Dr.Reddy's Laboratories Ltd shares gained 0.5 percent after it September-quarter consolidated net profit rose by 69 percent to 6.90 billion rupees.

(Editing by Kim Coghill)

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