The rupee slipped off the previous session's 11-week closing high on Monday, dragged by a spike in oil prices that could further expand widening trade and current account deficits and skewed by a lack of depth in the market.
The partially convertible rupee finished at 45.09/10 per dollar, 0.13 percent weaker than Friday's 11-week closing peak of 45.03/04.
"It was a very thin market today and with some buying coming in towards close, even the small lot deals tended to move prices a lot," a chief dealer at a state-run bank said.
"With cash (dollar) demand likely to pick up tomorrow when New York and other markets open we could see rupee go to 45.15 or 45.20," he said.
A jump in US oil futures to above $61 per barrel on worries about low US fuel stocks and expectations of an Opec output cut in January stoked worries about a widening trade shortfall. India looks abroad for two-thirds of its oil and higher prices push up the import bill. Central bank data on Friday showed a $16.21 billion merchandise trade deficit in July-September had helped widen the current account shortfall in the quarter to $7.66 billion, from a $5.3 billion shortfall in April-June.
The trade shortfall and dollar gains against other majors weighed on the rupee in 2005, when it reversed a three-year rally to end 3.5 percent weaker.
Robust foreign fund purchases of Indian stocks, which increased 24 percent on the year to hit a record $10.6 billion in 2005, helped prop up the rupee and limited its losses.
Federal bonds rose on the first trading day of 2006 as money market liquidity showed signs of improving on increased government spending and interest payments of about 100 billion rupees ($2.2 billion) on a Special Deposit Scheme run for investment by the Employees' Provident Fund.
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