MUMBAI: The rupee rose to its highest in a week on Friday, tracking gains in other Asian currencies and a rally in the local stock market but dollar demand from oil refiners may prevent a further rise.
At 10:25 a.m., the partially convertible rupee was at 49.36/37 per dollar, its strongest since Oct. 22, and 0.7 percent stronger than its close of 49.69/70 on Wednesday. The market was shut on Thursday for a local holiday.
"The rupee opened stronger in line other Asian currencies. Even stocks have opened stronger, but there is some month-end demand expected to creep in," said a senior dealer with a private bank.
The yen rose against the dollar and euro as a drop in Tokyo share prices renewed investor concern over riskier assets, while players cautiously awaited the Bank of Japan's policy decision later in the day.
The BSE Sensex rose more than 8 percent early, catching up with sharp rises overseas on Thursday when the domestic market was closed.
Foreign funds have sold a net $12.9 billion worth of Indian stocks in 2008 after buying a record $17.4 billion last year.
The outflows had sent the rupee to a record low of 50.29 on Monday, at which point it had lost more than 7 percent in October and 21.6 percent in 2008.
UBS said in a note this week it expected the rupee to close 2008 at 52.
Oil was trading above $64 per barrel. India's imports more than 70 percent of its oil and refiners are the largest buyers of dollars in the domestic currency market, with their demand tending to peak at the end of each month when they make payments.
One-month offshore non-deliverable forward contracts were quoting at 50.29/49, weaker than the onshore spot rate, indicating a bearish outlook for the rupee in the near term.
