MUMBAI (Reuters) - The rupee strengthened to its highest in more than a month on Tuesday as sentiment was buoyed by broad dollar weakness ahead of an expected interest rate cut by the U.S. Federal Reserve.
At 10:42 a.m., the partially convertible rupee was at 47.86/87 per dollar, 0.4 percent higher compared to its Monday's close of 48.05/06. It rose to 47.8003 in morning deals, its strongest since Nov. 11,
"The rupee rose in expectation of a Fed rate cut which is seen as positive. The dollar is also losing against other major currencies," said V. Kumar, chief dealer with State Bank of Travancore.
The U.S. Federal Reserve is widely expected to cut its key rate by 50 basis points to 0.5 percent later in the day.
The dollar fell to a two-month low against the euro on Tuesday as expectations grew that the Federal Reserve will cut interest rates to near zero and may lay out emergency tools to dispel a recession.
Dealers said they would also be closely watching the local equity market for clues on the direction of fund flows.
Indian shares seesawed in early trade after Asian shares dipped, and traders said recent foreign buying may ease off given the run-up in the market so far this month.
Foreign funds have bought a net $380 million worth of Indian shares so far in December, but are still net sellers of $13.3 billion in 2008. Last year, they were net buyers of a record $17.4 billion.
One-month offshore non-deliverable forward contracts were quoting at 48.07/22 per dollar, weaker than the onshore spot rate, indicating a bearish near-term outlook for the rupee.
