Rupee gains on capital inflows, firmer shares

MUMBAI (Reuters) - The rupee strengthened on Wednesday on rising capital inflows and as risk appetite got a boost after China said it would keep investing in European debt, pushing equities and the euro higher.

"There are good amount of (dollar) inflows and there are expectations of more flowing in the coming days," said Ashtosh Raina, head of foreign exchange trading at HDFC Bank.

Foreign funds have invested $7.75 billion in Indian debt and equity so far in 2012, according to data from Securities and Exchange Board of India.

At 10:34 a.m. (0504 GMT), the rupee was at 49.26/27 to the dollar, stronger than Tuesday's close of 49.36/37.

Raina said the currency should move between 49.20 and 49.70, with oil payments putting the brakes on the rise.

Oil refiners are the largest buyers of dollars in the local currency market as India imports more than 80 percent of its oil requirements.

India's main share index <.BSESN> was up 1.4 percent, taking gains in 2012 to more than 17 percent.

One-month offshore non-deliverable forward contracts were at 49.59.

In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange were all around 49.41, on total volume of $850 million.

The euro rose to a two-month high versus the Japanese yen on Wednesday, breaking above key technical resistance after Chinese central bank governor Zhou Xiaochuan said China would play a bigger role in solving Europe's problems.

Beijing will continue to invest in euro zone government debt, said the country's central bank governor, while calling on Europeans to produce more attractive investment products for China.

The state government of Maharashtra, where Mumbai is located, has announced a bank holiday on Thursday for local elections.

(Reporting by Aditya Phatak; Editing by Ranjit Gangadharan)