Rupee hits 52/dollar, hovers near record low (Reuters)

MUMBAI (Reuters) ? The rupee was within striking distance of its record low on Monday on strong dollar demand from local importers, with worries that foreign investors may flee from riskier assets and markets due to the global economic turbulence also weighing.

The Reserve Bank of India (RBI) was suspected to have sold dollars starting at 51.79 per dollar earlier in the day, but the selling pressure on the rupee was too high for it to contain the drop, traders said.

The partially convertible rupee lost 1.6 percent on the day to end at 52.155/165 per dollar making it the currency's biggest single session fall since Sept. 22.

During the day, the rupee had dipped to 52.16 -- its weakest since March 3, 2009 -- and just shy of its record low of 52.20 hit on the same day.

"Nothing is positive for the rupee either fundamentally, structurally or in respect to comfort from the regulator. I see the rupee in 51.00 to 56.00 range in the next one month," said J. Moses Harding, head of the asset liability committee, and market and economic research at IndusInd Bank.

Harding said the Reserve Bank of India's ability to intervene in the foreign exchange market to help the rupee was currently very constrained.

"Balancing the existing dollar liquidity squeeze, rupee liquidity shortage and yet limiting rupee's fall is next to impossible," Harding said.

Subir Gokarn, a deputy governor at the RBI, said last week the RBI would be careful about using foreign exchange reserves aggressively to protect depreciation of the rupee.

Economic Affairs Secretary on Monday said the ability of Indian monetary authorities to intervene and stem the rupee's slide was limited.

The RBI has always maintained that it does not protect any particular level on the rupee and would only intervene to iron out excessive volatility. The intervention data will be released by the RBI only after a lag of two months.

The RBI intervened in the foreign exchange market in September, after following a hands-off approach for nine straight months, its monthly bulletin showed earlier this month.

Relentless dollar demand from importers and a fall in local shares weighed on the rupee. India imports more than three-quarters of the oil it consumes and refiners are the biggest buyers of dollars in the market.

The rupee is also being hammered by weak fundamentals like a widening current account deficit and subdued portfolio flows given the weak sentiment in equities, traders said, adding that there were no signs of a reversal in these factors.

Foreign portfolio investors have bought equities worth $392.57 million so far this year, sharply lower than $29 billion they invested in 2010, data from the Securities and Exchange Board of India's website showed.

"The recent upside pressure (on rupee) is partly positioning induced, and not just driven by actual flows," said Priyanka Kishore, FX strategist at Standard Chartered Bank.

"Hence, greater intervention by the RBI or any positive development out of the Euro area could lead to long liquidation and a swift reversal in rupee," she said.

The rupee has declined nearly 16 percent from its peak in 2011 hit late July and is one of the worst performers among major Asian currencies.

Fears about out-of-control government debt on both sides of the Atlantic swept across financial markets again on Monday, knocking stocks sharply lower and pushing up prices of bonds deemed to be safe havens.

The one-month offshore non-deliverable forward contracts were quoted at 52.59, indicating a bearish short-term view on the on-shore spot rate.

The one-month onshore forward dollar premium was 23 points from 25.50 points on Friday and the three-month was at 48 points from 58.50. The one-year premium was at 136.75 points from 186 previously. This is the lowest level for the premium since Oct. 21.

"Forwards are likely to trade in a range into year-end with RBI intervention limiting the upside and corporate paying providing downside support," Standard Chartered's Kishore said.

In the currency futures market , the most traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange were ended at 52.3000, 52.2700 and 52.2575 respectively. The total volume was at $6.56 billion.

The euro was at $1.3468 at end of rupee trade from $1.3520 on Friday, while the index of the dollar index was at 78.480 points from 77.970 points.

(Editing by Aradhana Aravindan)

Source: http://us.rd.yahoo.com/dailynews/rss/india/*http%3A//news.yahoo.com/s/nm/20111121/india_nm/india606386

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