By Pooja Thakur and Glenys Sim Dec. 8 (Bloomberg) -- India’s rupee and S&P CNX Nifty Index futures rose to three-week highs after the central bank cut interest rates for the third time in less than two months and the government unveiled additional spending to bolster its economy. The rupee gained 0.8 percent, Nifty futures for December delivery increased 4.4 percent, while the benchmark 10-year bond yield hovered at the lowest level in almost four years. The government said yesterday it will spend an extra 200 billion rupees ($4 billion) for the year ending March 31 after the Reserve Bank of India cut rates by 1 percentage point. “What you really need is fiscal stimulus at this time,” Tom Byrne, senior vice president at Moody’s in Singapore, said in an interview in Singapore today. “You can ease up but will the banks actually lend now that asset quality is expected to deteriorate? Banks have to protect their capital.” The size of the incremental expenditure, representing 0.3 percent of the gross domestic product, indicates the government wants to rely on monetary policy to stimulate growth. Lower interest rates will allow Indian companies to turn to local banks for funding rather than rely on lenders in the U.S. and Europe, where credit has dried up for many borrowers. Nifty futures rose 109.5 to 2,825.5 as of 12:21 p.m. in Mumbai, after falling 2.8 percent in the previous session. The contract is derived from the 50 stocks on the underlying S&P CNX Nifty Index on the National Stock Exchange of India Ltd. Signal to Cut The local currency strengthened as much as 0.8 percent to 49.195 a dollar before trading at 49.22 in Mumbai, according to data compiled by Bloomberg. The yield on the benchmark 8.24 percent note due April 2018 dropped 9 basis points to 6.66 percent, according to Paresh Nayar, chief of currency and fixed- income trading at Development Credit Bank Ltd. in Mumbai. It reached 6.57 percent earlier, the lowest since March 2005. The country’s economic woes have been compounded by the terrorist attack on luxury hotels, a cafe and other places in its financial capital of Mumbai on Nov. 26, killing 163 people. The attacks may have helped speed up Indian Prime Minister Manmohan Singh’s spending plan and interest rate cuts. “This is a clear signal to commercial banks to cut lending rates,” Nayar said. “This is clearly done to boost demand in the economy. Equities should benefit, and the rupee should too.” To contact the reporter on this story: Pooja Thakur in Mumbai at pthakur@bloomberg.net; Glenys Sim in Singapore at gsim4@bloomberg.net

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