India's Rupee Drops Past 46 a Dollar as Risk Aversion Increases

By Anil Varma

Sept. 15 (Bloomberg) -- India's rupee weakened past 46 per dollar for the first time in two years on concern investors will dump riskier assets after Lehman Brothers Holdings Inc. filed for bankruptcy.

The Indian currency declined for a fifth day on concern liquidation of the 158-year old U.S. securities firm will deepen a financial crisis that threatens to drag the global economy into a recession. The rupee fell as local traders sold the currency, taking a cue from its decline in the overseas non- deliverable forward market, said Paresh Nayar, head of currency and debt trading at Development Credit Bank Ltd. in Mumbai.

``Concerns about a pullout of investors from emerging- markets is driving rupee sales,'' Nayar said. ``Also, the NDF market is influencing the rupee's trend.''

The rupee fell 0.7 percent to 46.05 per dollar at the 5 p.m. close in Mumbai, adding to last week's 2.3 percent loss, according to data compiled by Bloomberg. That is the lowest closing level since Sept. 19, 2006.

Lehman, once the fourth-biggest U.S. investment bank, failed to find a buyer and succumbed to the subprime mortgage crisis after listing more than $613 billion of debt. Bank of America Corp., the largest U.S. consumer bank, said today it has agreed to buy Merrill Lynch & Co. in an all-stock deal that values the world's biggest brokerage firm at about $50 billion.

Indian stocks fell. The Bombay Stock Exchange's Sensitive Index, or Sensex, declined 3.4 percent, taking the year's losses to 33.3 percent. Overseas investors have sold a record $7.9 billion more Indian shares than they bought this year, according to the Securities and Exchange Board of India.

Offshore contracts that allow traders to bet on the rupee's value in one month indicate an implied exchange rate of 46.35 a dollar, or 0.6 percent lower than the spot rate, Bloomberg data show. Non-deliverable contracts are used for currencies that can't be freely converted and are settled in dollars. Local forwards show an implied rate of 46.21 a dollar in a month.

To contact the reporters on this story: Anil Varma in Mumbai at avarma3@bloomberg.net.