The rupee pared early gains on Wednesday as investors squared positions ahead of a market holiday and uncertainty about the near term trend for the Indian unit. The partially convertible rupee closed at 40.30/31 per dollar, a shade stronger than Tuesday's 40.31/32 but weaker than an intraday peak of 40.21.
It had fallen to a five-month low of 40.40 on Monday. Financial markets are closed on Thursday for a local holiday. "It has been a ranged session with banks covering their short-dollar positions and state-run banks stepping on the bid at lower levels on the dollar/rupee," said L.V. Prasad, head of currency trading at Mumbai-based IndusInd Bank.
Dealers said volumes remained thin as exporters were unsure about the rupee's near term outlook due to a dollar shortage in the banking system. Capital outflows and a curb on offshore loans by policymakers have slowed the supply of dollars. Foreigners have sold more than $3 billion of shares so far in 2008 after buying $17.4 billion in 2007.