Rupee rises on local shares; volatile euro caps gain

The rupee rose on Tuesday aided by a rebound in domestic equities, but lack of clarity on how European policymakers intend to resolve the region's debt crisis kept the euro choppy, limiting the gains.

The partially convertible rupee ended at 49.065/075 to a dollar, stronger than its Monday's close of 49.445/455, after moving in a band of 49.06-49.30 during trade.

"The bounce back in rupee is shallow and the market is in the buy-on-rumours, sell-on-facts mood," said J. Moses Harding, head of global markets at IndusInd Bank.

"People are just waiting to see the outcome of the euro zone crisis. Until then, volatility in rupee will continue."

The rupee had lost 4.4% in the past week, its biggest fall since the week ended July 12, 1996. It also remains the worst performer among major Asian peers.

The local benchmark share index rose nearly 3% as a recovery in world markets triggered short covering.

World stocks rose as investors took comfort from reports that officials were working to add to measures to calm the euro zone debt crisis, including an increase in size of the regional bailout fund.

But, Spain's economy minister Elena Salgado, and German Finance Minister Wolfgang Schaeuble denied talk of any increase to the European Financial Stability Facility. The euro steadied against the dollar on Tuesday, but sentiment was fragile after comments by Salgado, who tempered expectations of a radical and swift action by European policymakers to contain the worsening debt crisis.

The euro was at USD 1.3547 at the end of rupee trade, after moving in a band of USD 1.3481-USD 1.3600. It closed at USD 1.3523 on Monday.

The index of the dollar against six major currencies was at 77.911 points from 78.029 previously.

The one-month onshore forward premium was at 21.75 points from 21.25 on Monday, the three-month was at 65.50 points from 64.50 and the one-year was at 129 points from 127.

The one-month offshore non-deliverable forward contracts were quoted at 49.33, weaker than the onshore spot rate, suggesting a bearish near-term outlook.

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 at 49.2700, 49.2825, and 49.2800 respectively. The total traded volume on the three exchanges was USD 5.99 billion.