Rupee at 2-1/2 week low; risk aversion dents sentiment

The rupee fell to a 2-1/2 week low on Tuesday, tracing losses in the euro and Asian currencies as risk aversion dominated market sentiment against the backdrop of sovereign debt problems in Europe and the United States.

At 10:27 am (0457 GMT), the partially convertible rupee was at 44.670/675 per dollar, weaker than Monday's close of 44.45/46. It weakened as far as 44.705, its lowest since March 31.

"Today there are bids on risk aversion," said Vikas Chittiprolu, a senior forex dealer with Andhra Bank.

The euro nursed heavy losses in early Asian trade while the yen gained across the board as worries about sovereign debt problems in Europe and the United States prompted investors to unwind carry trades.

Almost all Asian currencies were weak against the dollar.

Already hit by fears that Greece will have to restructure its mountain of debt, possibly as early as this summer, market sentiment took a further dive after Standard & Poor's threatened to downgrade the United States' prized AAA credit rating.

S&P slapped a negative outlook on the US top-notch rating and said there was at least a one-in-three chance that it could be eventually cut, unless the Obama administration and Congress find a way to slash the yawning federal budget deficit within two years.

The index of the dollar against six major currencies was up 0.035 at 75.528 points, higher than 75.350 at the close of the domestic forex market on Monday.

Rohan Naik, head of foreign exchange trading at Standard Chartered Bank in Mumbai, said he does not see the rupee weakening beyond 44.70/75, which is a technical support level.

"I think the rupee should be more or less rangebound tracking stocks," said Ashtosh Raina, head of foreign exchange trading at HDFC Bank in Mumbai.

Choppy shares provided little direction.

The one-month onshore forward premium was at 27.75 points from 26 points at its previous close. The three-month was at 82.25 points from 83 and the one-year was at 315 points versus 317.25.

The one-month offshore non-deliverable forward contracts were quoted at 44.86, weaker than the onshore spot rate.

In the currency futures market , the most traded near-month dollar-rupee contracts on the National Stock Exchange was at 44.7425 while on the MCX-SX and the United Stock Exchange were at 44.74, with total volume at USD 2.1 billion.