The Indian rupee reversed early losses to end a shade firmer on Monday as strong foreign fund inflows into Indian stocks met with suspected central bank intervention to curb the local currency's gains, dealers said.
The main stock index reached its latest record peak, ending 1.3 percent up on the day. Foreign institutional investors have bought more than $2.7 billion worth of Indian shares since the start of January, putting upward pressure on the rupee. But dealers said state-run banks, acting on behalf of the Reserve Bank of India, had been absorbing the dollars on offer to drive the rupee off the day's high.
"The inflows were pretty strong today and it's only because the national banks were buying (dollars) that we didn't see the rupee appreciate more," said one dealer at a foreign bank.
"It appears most likely they were backed by the RBI. They bought what dollars were offered to them rather than hitting the market and trying to drive it up." The rupee ended at 44.3150/3250 per dollar, a fraction stronger than Friday's close of 44.33/34. It touched 44.2875 during the session, according to Reuters data, but stopped short of Thursday's two-week peak of 44.25.
Dealers said the state-run banks had bought dollars for rupees between 44.34 and about 44.30.
Overseas, the yen gave ground to the dollar and the euro as market expectations grew that Japanese interest rates would remain near zero for a while, even if Japan starts phasing out its ultra-easy monetary policy as early as this week. The euro was flat against the dollar.
Dealers said the dollar's gains against the yen were causing some uncertainty in the market, as it had recovered unexpectedly from a one-month low against the Japanese currency set last week.
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