Rupee snaps 2-mth falling streak; Europe key

By Aditya Phatak

MUMBAI (Reuters) - The rupee clawed higher on Monday in volatile trade mirroring choppiness in domestic equities and the euro, but the unit broke a two-month declining bias boosted by hopes that Europe will be able to contain its debt crisis.

The partially convertible rupee ended at 48.69/70 per dollar, 0.1 percent stronger from Friday's close of 48.7550/7650 after traversing in the range of 48.61 to 48.90 during the day.

"It was the agreement reached at the European Union summit last week which really supported the rupee as it turned the mood from risk-off to risk on," said Pramod Patil, senior foreign exchange dealer at State Bank of Mauritius.

The unit gained 2.3 percent in the past one week and 0.6 percent in the month of October. It had lost 5.89 percent and 4.12 percent of its value in September and August respectively.

"The future direction of the rupee will depend heavily upon how euro zone follows up its plans with action for resolving the debt crisis," said Ashish Barua, a senior foreign exchange dealer with IndusInd Bank.

Last Thursday, the euro zone leaders struck a last-minute deal to contain the currency bloc's two-year-old debt crisis, but pressures mounted to finalise the details of their plan to slash Greece's debt burden and strengthen their rescue fund.

But the German Finance Minister Wolfgang Schaeuble was cited on Oct. 29 as saying that Europe still has a long way to go to solve its crisis.

In the current week, the local currency may influenced by the various key economic events and a Group of 20 nations summit, traders said.

The U.S. Federal Reserve will announce its rate decision on Wednesday around 1815 GMT after a two day meeting which starts Tuesday, while the European Central Bank rate announcement is due at 1245 GMT on Thursday.

Any sharp movements in the dollar and the euro post the central bank decisions could impact the local currency, dealers added. The rupee continues to be worst performer among major Asian peers so far in 2011.

Focus will be also on G20 leaders two-day summit from Thursday that is likely to focus on Europe's efforts to contain its sovereign debt crisis and avoid a repeat of the financial shock that roiled markets after the Lehman Brothers collapse in 2008.

The euro was at $1.4001 at end of rupee trade, higher from the day's low of $1.3976, but lower than $1.4148 on Friday. The index of the dollar against six major currencies was at 75.982 points versus 75.079 points previously.

Indian shares posted their biggest monthly gain in seven months, even as the main stock index snapped a four-day winning streak on Monday, edging down 0.6 percent by close as risk-wary investors locked in profits and stayed away from fresh buying.

The one-month onshore forward premium on the rupee was at 26.25 points from 24.75 on Friday, the three-month premium was at 68.25 points from 65.50 and the one-year premium was at 169 points, from 148.

The one-month offshore non-deliverable forward contracts were quoted at 48.94, weaker versus the spot rupee rate.

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 ended at 48.9525, 48.9625 and 48.9600 respectively. The total traded volume on the three exchanges was $4.73 billion.

(Editing by Subhadip Sircar)