The rupee reversed early gains and weakened on Monday after May factory data lag ged expectations

while dollar demand from oil firms and the US unit’s gains agai nst majors added to the unit’s woes. The partially convertible rupee closed at 46.77/78 per dollar, 0.2% weaker than its previous close of 46.66/67. The unit traded in a band of 46.61 to 46.79 duri ng the day. “The market was really quiet through the latter half but there was some oil dema nd seen which was weighing,” a senior dealer with a private bank said, adding th at the weaker-than-expected factory data also hurt sentiment. Industrial output rose at its slowest pace in seven months in May, but the slowe r-than-forecast growth is not expected to stop the Reserve Bank of India (RBI) f rom raising interest rates later this month. “Lead indicators like the PMI index, non-food credit and non-oil imports continu e to point to an expansion and as yet, we maintain our IIP growth estimate at 9. 8% for FY11,” economists at Yes Bank said in a note released after the data. “With the overall growth story intact, we expect monetary policy to continue to focus on inflation management and move towards normalizing policy rates by hikin g both the repo and reverse repo by another 25 bps in the upcoming policy review .” The Reserve Bank of India is likely to raise interest rates again in its quarter ly review on 27 July, and rates at the end of the year are likely to be higher t han forecast before Friday’s unexpected 25 basis point rise, a Reuters poll has showed. Dealers said gains in shares, however, helped sentiment and prevented a further decline in the rupee. Indian shares rose for the third straight session and closed at their highest in more than three months on Monday, riding on the wave of earnings optimism as th e season kicks off on Tuesday. Foreign fund flows into and out of the share market have a key influence on the rupee. So far in 2010, foreign investors have purchased shares worth a net $7.1 billion, in addition to last year’s record $17.5 billion inflow. But the dollar’s gains versus major currencies weighed. The index of the dollar against six majors was 0.5% higher. The euro fell against the dollar on Monday, pulling away from a two-month high a s concerns about the effectiveness of stress tests on European banks prompted in vestors to trim long positions in the single currency. One-month offshore non-deliverable forward contracts were quoted at 46.98, weake r than the onshore spot rate. In the currency futures market, the most traded near-month dollar-rupee contract s on the National Stock Exchange and MCX-SX both closed at 46.8875, with the tot al traded volume on the two exchanges at a meagre $3.1 billion. SOURCE : WWW.NIFTYVIEWS.COM

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