The Indian rupee trimmed losses in late trade on Monday as custodial banks unwound long dollar positions, but the US unit's strength against other major currencies overseas prevented a sharper rise. The partially convertible rupee closed at 48.92/93 per dollar, 0.1 percent weaker than its previous close of 48.87/88.
"The dollar-rupee came down during late trade due to liquidation of long dollar positions by custodial banks," a senior trader with a foreign bank said. However, losses in the domestic share market continued to fuel concerns of more foreign fund withdrawals while a stronger dollar overseas also weighed on sentiment, dealers said.
Indian shares fell 3.8 percent on Monday in their biggest drop in almost four weeks, as weak data and rising bad loans sent lenders such as ICICI Bank and Housing Development Finance Corp sharply lower. Foreign fund flows have been a key factor for the rupee's fortunes in recent years. Foreigners have already pulled more than $1 billion from Indian shares this year, to add to outflows of more than $13 billion in 2008.
The rupee lost 19.1 percent last year. The euro hovered near two-month lows against the dollar on Monday while sterling sank more than two percent against the US currency on worries over the financial sector and economic outlook.
BOND YIELDS CLIMB: Indian federal bond yields climbed on Monday as investors trimmed positions ahead of a wave of fresh debt supplies due to hit the market in the coming weeks.
The yield on the 8.24 percent bond maturing in 2018 ended at 6.22 percent, five basis points above Friday's close of 6.17 percent and even further above an intraday low of 6.02 percent. The 2018 bond yield rose 92 basis points in January mainly due to supply concerns after falling 254 basis points in 2008.
Volumes were a high 87.60 billion rupees ($1.79 billion) on the central bank's trading platform with the 8.24 percent bond being most traded. Yields rose in the closing minutes of trading as traders speculated the central bank may announce an auction soon.
According to an indicative calendar, the government is scheduled to borrow 70 billion rupees through the issue of bonds between February 6-9. However, the calendar is not binding on the central bank and it reserves the right to cancel, postpone or change the amount of funds to be raised. "Bonds are bogged down by short-term uncertainties on the new benchmark bond, as the new bond is not so liquid, and also a lack of clarity on the government's borrowing programme," said K. Ramkumar, head of fixed income at Sundaram BNP Paribas Mutual Fund.