Rupee pulled down by stock market's drop

Enlarge Photo A man uses an electronic machine to check an Indian currency note at a money...

Wed, Jun 4 06:36 PM

By Swati Bhat

MUMBAI (Reuters) - The rupee fell on Wednesday as the stock market dropped 2.8 percent to a two-month closing low, heightening worries foreigners would continue to withdraw funds, with broad gains in the U.S. dollar also weighing.

The partially convertible rupee ended at 42.77/78 per dollar, 0.4 percent weaker than Tuesday's close of 42.60/61 and down nearly 8 percent this year.

"The rupee is down tracking the stock market mainly," said L. Subramanian, chief dealer at ICICI Bank.

The stock market fell sharply after a rise in state-set fuel prices triggered concerns of accelerated inflation and a squeeze on corporate earnings growth.

The stock market has fallen 23.5 percent this year, with foreigners being net sellers of $4.3 billion of stocks in 2008, including a net $1.5 billion in the 10 sessions to Tuesday.

In 2007, foreigners bought a record $17.4 billion worth shares, helping the rupee rise more 12 percent.

Dealers said dollar demand from oil companies was low. Refiners are waiting for full details on the Reserve Bank of India's decision last week to provide foreign exchange to oil firms, which analysts say would reduce demand for dollars and support the rupee.

Oil is India's biggest import, and refiners are the major buyers of dollars in the market. On Wednesday, oil was trading around $124 a barrel, about $11 a barrel below a record high hit last month.

The dollar held steady versus a basket of six major currencies on Wednesday, keeping hefty gains made in the previous session on Federal Reserve Chairman Ben Bernanke's warning about the inflationary threat from a weak U.S. currency.

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