Rupee takes a breather on importer dollar demand.

MUMBAI: The Indian rupee edged higher on Thursday, a day after it posted its best single-day rise in two months, as gains in local shares and the euro were offset by demand for the US unit from importers, including oil firms.

The partially convertible rupee ended at 45.2750/2850 per dollar, 0.2 per cent above its 45.37/38 close on Wednesday. In early deals, the unit had risen as high as 45.21, its strongest since Nov. 22.

On Wednesday, the rupee had risen 1.1 per cent in its best single-day rise in two months.

"After yesterday's dollar sell-off, some rest today. There weren't too many flows seen in the market today, so demand-supply was evenly matched," said Hari Chandramgathan, a foreign exchange dealer with Federal Bank .

"Heard there was some corporate buying around 45.25 levels, oil demand too was seen in the market," he added.

Oil is India's biggest import and refiners are the largest buyers of dollars in the domestic currency market.

Traders said gains in shares helped the rupee and fuelled hopes for sustained foreign capital inflows.

Indian shares climbed 0.7 per cent on Thursday, extending gains to a fourth day, on hopes robust economic growth would boost corporate earnings. Firm global markets also helped the upbeat sentiment.

Foreign funds have bought $415.63 million worth of shares in the last three trading sessions until Wednesday, latest data shows, taking net investments to a record of around $29.1 billion in 2010, on top of the $17.5 billion purchased last year.

A strong GDP growth number for the September quarter released on Tuesday continued to cheer the stock market.

India's economy grew faster-than-expected in the second quarter of 2010/11, boosted by farm output and manufacturing, putting pressure on the Reserve Bank of India to tighten monetary policy, although a rate hike next month looks unlikely.

Capital inflows towards the series of public issues should also keep the Indian unit supported, dealers said.

State-run Shipping Corporation of India is likely to raise up to $259 million through a share sale. The issue opened on Tuesday and will close on Friday.

Dealers said onshore forward premiums edged higher in line with the offshore rates.

"Offshore volatilities were bid, pushing non-deliverable forward (NDF) rates higher and due to the arbitrage gap, onshore rates too moved up," the chief foreign exchange dealer with a large private bank said.

The one-year onshore dollar premium shot up to a high of 223.75 points from Wednesday's close of 210 points, reflecting a outright rate of around 47.50, while the one-year NDF was at 47.46.

The euro held firm on Thursday after rising the previous day as investors waited to see if the European Central Bank would take more steps to calm euro debt concerns, but could fall again if the central bank disappoints.

The dollar index, which tracks the greenback's performance against a basket of other major currencies, was down 0.3 per cent when the rupee market closed.

In the currency futures market, the most traded near-month dollar-rupee contract on the National Stock Exchange, MCX-SX and United Stock Exchange closed at 45.50, 45.5025 and 45.4975 respectively, with the total traded volume on the three exchanges at a low $5.6 billion.

Source : economictimes.indiatimes.com