Rupee edges lower tracking shares drop

MUMBAI (Reuters) - The rupee slipped on Tuesday in tandem with a lower start to the local sharemarket, but the dollar's drop against major units limited the fall.

At 10:20 a.m. (0450 GMT), the partially convertible rupee was at 47.05/06 per dollar, 0.2 percent below its previous close of 46.96/97 on Friday. Financial markets were closed on Monday for a holiday.

"The overseas markets have been quite volatile over the last few days. I don't think there is much of upside to the dollar-rupee, upticks will be sold," said Ashtosh Raina, head of foreign exchange trading, at HDFC Bank.

He expected the rupee to trade in a band of 46.80-47.20 during the day.

Shares fell as much as 0.9 percent in early trade after a three-day weekend, with sharp drops in world markets keeping investors wary.

Portfolio flows into local shares are a key driver of the rupee. Foreigners have bought more than $14 billion of local equities so far this year, after being sellers of more than $13 billion in 2008.

The dollar index, a gauge of the U.S. unit's performance versus six majors, was down 0.1 percent. Most Asian units were also stronger than the dollar.

One-month offshore non-deliverable forward contracts were quoting at 47.08/18, weaker than the onshore spot rate.

(Reporting by Swati Bhat; Editing by Ranjit Gangadharan)

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