Indian Rupee Rises on Speculation Stock Gains to Stem Outflows

By Anoop Agrawal

Aug. 7 (Bloomberg) -- India's rupee rose for a third day, its best run in almost three weeks, on speculation rising stocks will encourage global investors to buy the nation's assets.

The rupee extended gains from yesterday's highest close since May 12 as oil's decline to near a three-month low in New York reduced dollar demand from Indian refiners. The rupee is the second-best performer in the past month among the 10 most- traded currencies in Asia outside Japan.

``Confidence of investors in the equity markets is on the rise and that should result in some inflows,'' said Puneet Sharma, chief currency trader at state-owned Allahabad Bank in Mumbai. ``The rupee will remain supported in the short-term.''

The rupee rose 0.2 percent to 41.9925 per dollar as of 10:07 a.m. in Mumbai, according to data compiled by Bloomberg. It may advance to 41.95 this week, Sharma said.

The Bombay Stock Exchange's Sensitive Index, or Sensex, advanced for a third day, approaching a two-month high.

Funds based abroad sold $6.9 billion more Indian shares than they bought this year, according to exchange data. Net purchases were a record $17.2 billion in 2007, helping the rupee complete its best year since at least 1974.

Oil for September delivery traded little changed at $118.84 a barrel. It yesterday closed at $118.58, the lowest since May 2. The commodity has declined about 19 percent from its all-time high of $147.27 a barrel reached July 11.

``The fall in oil prices has had the biggest impact on dollar demand,'' Sharma said. ``A further fall in oil will only increase the pace of the rupee's gains.''

India, which depends on imports to meet about 70 percent of its annual energy needs, paid an average $8 billion a month this year for oil from abroad, higher than $5.5 billion in 2007, government data show.

To contact the reporter on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net