Indian Bonds Gain On Lower Crude Prices; Rupee Down On Euro .

MUMBAI (Dow Jones)--Indian government bonds rose Monday as a fall in crude oil prices on the back of global economic uncertainties allayed some immediate domestic inflationary concerns.

The benchmark 7.80% 2021 bond ended at INR96.82, near the day's high of INR96.83 and compared with Friday's close of INR96.44.

Crude oil futures were lower Monday as the euro weakened against the dollar and European stocks slid on growing fears the U.S. is heading back into a recession. India imports about 80% of the crude oil it requires.

Dealers said the market is almost factoring in a 25-basis-point hike in the key interest rate when the central bank meets Sept. 16 to review its monetary policy, but it also expects persistent global uncertainties and lower commodity prices may ease inflationary pressures in the short to medium term.

The Reserve Bank of India has raised its lending rate by 3.25 percentage points since March 2010.

The central bank may raise the rate by 25 basis points, but "what would be relevant to watch out for would be the stance of the RBI that is whether there is any deviation from the hawkish stance adopted so far," said Joydeep Sen, senior vice-president of fixed income at BNP Paribas Wealth Management.

In the currency market, the Indian rupee fell against the U.S. dollar due to a fall in local stock prices and tracking the euro, as weak economic data in the euro-zone drove investors into the safety of the greenback.

The dollar was at INR45.99 late Monday, up from INR45.78 late Friday.

The Bombay Stock Exchange's Sensitive Index fell 0.6% to close at 16,713.33, snapping a three-day winning streak.

Also, "New York is closed [on Labor Day], so dealers are squaring off their positions near the end of the session," said a senior dealer at a state-run bank.

However, some in the market expect the rupee to reverse its recent underperformance in coming days.

Barclays Capital in report said the key drivers for a positive rupee view are resumption of stock market inflows as the monetary policy tightening cycle nears its end, as well as resilient bond inflows and the positive impact on trade balance from lower crude oil prices.

Source : online.wsj.com