Forex

The rupee moved further from a two-month peak on Friday as steep losses in the stock market reignited worries foreign investors would sell more holdings against a backdrop of slowing growth.

News that seven small bombs had exploded in Bangalore, killing one woman and wounding at least 15 people, also weighed on sentiment, although the rupee was already under pressure beforehand.

The partially convertible currency ended at 42.26/27 per dollar, 0.3 per cent weaker than Thursday's close of 42.13/14. It rose to 41.82 per dollar in intraday deals on Thursday, its highest since May 12.

For the week it ended up 1.2 per cent but it is still 6.7 per cent down for the year.

"Oil buying and the stock market fall weighed on the rupee today," said Patrick Aranha, head of treasury at Mizuho Corporate Bank in Mumbai.

"The bomb blasts also kept sentiment subdued," he said. Indian shares fell 3.4 per cent on Friday, pulled down by financials ahead of an expected rise in official interest rates next week, and by Reliance Industries.

Foreign institutional investors have sold a net $6.5 billion worth of India stocks so far in 2008, after buying a record $17.4 billion last year. Capital inflows are a key support for the rupee.

UBS on Friday cut its forecast for Indian economic growth in 2008/09 to 7.1 per cent from 7.7 per cent earlier, as high inflation and rising interest rates bite into consumer spending.

Analysts were waiting for the interest rate review next week where the Reserve Bank of India is expected to raise its key lending rate by 25-50 basis points from 8.5 per cent, which could make rupee-denominated assets more attractive and buoy the local currency.

One-month offshore non-deliverable forwards contracts were quoting at 42.40/42.45 per dollar, weaker than the onshore rate.