Rupee falls for 3rd straight day; seen pressured

The rupee weakened for a third straight session on Tuesday as investors dumped riskier assets on expectations of a sustained crisis in the euro zone, but some dollar selling by exporters pulled the local unit off the day's lows.

The partially convertible rupee closed at 49.40/41 per dollar, half a percent weaker than the previous close of 49.15/16, after moving in a 49.20-49.50 band during the session.
"The stock market was negative and broadly the dollar was also gaining overseas across all majors, so the rupee had to weaken," said Sudarshana Bhat, chief foreign exchange dealer with state-run Corporation Bank.
"Exporters however came forward to sell dollars around 49.50 levels which helped the rupee recover. I think 49.20-49.90 should hold in the near-term, but overall sentiment still remains bearish," he added.
Shares too dropped for a third straight session, falling 1.77% to their lowest close in more than five weeks, as a rating downgrade of top lender State Bank of India rattled investors and sent bank stocks reeling on renewed fears of weakening asset quality.
Foreign funds have dumped more than USD 500 million worth of domestic shares so far in this fiscal year, after having bought a record USD 29.3 billion in 2010.
The index of the dollar against six major currencies was up 0.3% at 70.660 points when the local forex market closed. The euro was at USD 1.3181.
Traders said the rupee would continue to closely track movements in the euro in the near term, with the likelihood of the euro breaching the USD 1.30-mark seen weighing on the rupee.
The euro held near a nine-month low against the dollar and a 10-year trough against the yen on Tuesday, as euro zone policymakers failed to quell rising fears of a Greek debt default, hitting riskier currencies and boosting the greenback.
Traders, however, said they expect the Indian central bank to protect the rupee from breaching the 50-per-dollar mark.
The Reserve Bank of India, which steps in to smooth excess volatility, is suspected to have intervened in September when the rupee had touched 49.90 to a dollar.
Analysts however expect the rupee to fall further in coming days because of a worsening current account deficit and fears of fiscal slippage from the government.
Data released last Friday showed India reached 66% of its full-year fiscal deficit target in just five months, and the current account deficit widened to USD 14.1 billion in the June quarter, compared with USD 12 billion in the same period a year ago.
The one-month onshore forward premium was at 20.50 points from 24.50 on Monday, while the one-month offshore non-deliverable forward contracts were quoted at 49.62.
In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange and the MCX-SX closed at 49.5850, while those on the United Stock Exchange ended at 49.5775. The total traded volume on the three exchanges was USD 5.1 billion.