Rupee off-highs as oil demand persists

The rupee ended stronger on Wednesday buoyed by large gains in local shares, but off its day's highs on persistent dollar demand by oil firms.

Oil refiners are the largest buyers of dollars in the foreign exchange market as India imports more than 80% of its oil requirements.

"There are persistent oil bids because oil is on boil due to the Iran tussle," said Vikas Chittiprolu, a senior foreign exchange dealer with state-run Andhra Bank.

The rupee ended at 49.29/30 to the dollar, stronger than Tuesday's close of 49.36/37, but down from the day's high of 49.19.

Oil rose to USD 118 a barrel on Wednesday as real and threatened supply disruptions outweighed concerns about the health of the global economy.

Oil is also drawing support from the prospect of what could be a larger disruption to Iranian crude supplies as a result of worsening tensions over Tehran's nuclear programme.

Iran is the second-largest producer in the Middle East, and the European Union has banned Iranian crude exports from July 1, prompting buyers of its crude to look for alternative supplies.

Dealers said that the rupee still managed to keep gains on strong local stocks.

Indian shares rose 2% to their highest level in more than six months.

"Corporate selling and flows to stock market helped rupee to hold the gains," said Hari Chandramgathan, a forex dealer with Federal Bank in Mumbai, who expects the rupee to get supported around 48.80.

The forex market is shut for trading on Thursday as the Maharashtra state government has announced a bank holiday for local elections.

The euro rose against the dollar on Wednesday after China said it would continue investing in euro zone debt, although further gains looked dependent on whether Greek leaders signed a commitment to implement tough austerity measures.

Traders said hopes have grown in recent weeks that Greece will get fresh international aid and avoid a disorderly default next month, but the issue is far from settled and could dent foreign fund inflows.

One-month offshore non-deliverable forward contracts were at 49.28.

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 49.39, on total volume of USD 3.81 billion.