The Indian rupee bounced off early lows to end flat against the dollar on Friday as investors brushed aside concerns of regional geopolitical risks and bought the local unit on hopes of renewed capital inflows into stocks.
The assassination of Pakistani opposition leader Benazir Bhutto triggered an early decline in local stocks but the market recovered to end largely flat, calming concerns of fund outflows.
The partially convertible rupee ended at 39.42/43 per dollar, steady from Thursday's close but above an intraday low of 39.47 hit in early deals.
"The rupee opened down on a much weaker than expected stock market ... but once that did not materialise, exporters sold the dollar at higher levels," said Paresh Nayar, chief dealer-forex at Development Credit Bank (DCB).
Foreign buying of Indian stocks has been a key factor in the rupee's 12 percent rise this year, so any concerns that foreigners may withdraw funds would see the currency weaken.
Foreign funds bought around $640 million of Indian shares in the first two sessions of this week, after selling $1.3 billion of stocks in four sessions last week.
DCB's Nayar said a lack of strong month-end dollar purchases by oil refiners has also kept the overall tone on the pair soft.
Oil importers usually step up their dollar buying towards the end of the month. India imports a majority of its oil needs.
Analysts said despite the turmoil in neighbouring Pakistan, the economic outlook for India still continues to be robust with the economy poised to grow at around 8.5 percent in 2007/08, attracting strong overseas interest.