By Anil Varma Dec. 17 (Bloomberg) -- India’s rupee rose to the strongest level in more than five weeks after the Federal Reserve cut its benchmark interest rate to a record low, boosting demand for higher-yielding assets. The currency gained for a third day as Asian stocks gained, stoking optimism falling interest rates in the world’s largest economy will damp risk aversion among investors. Average daily purchases of Indian shares this month by overseas investors exceeded sales for the first time since April, data from the nation’s capital markets regulator showed. “The rupee may extend its advance on the Fed’s near-zero rate policy, targeting 46.90 over the next few sessions,” said Sean Callow, a currency strategist with Westpac Banking Corp. in Sydney. “The rupee may benefit more from the equity bounce than some of its regional peers.” The rupee strengthened 0.5 percent to 47.665 per dollar at the 5 p.m. close in Mumbai, according to data compiled by Bloomberg. Nine of the 10 most-traded Asian currencies outside Japan gained today. India’s rupee has rebounded more than 6 percent from a record low of 50.615 touched on Dec. 2. The currency’s 17 percent loss this year is still the biggest since 1991, when a balance of payments crisis forced the South Asian nation to pawn its gold with the International Monetary Fund to pay for imports. Cutting Rates The Fed said yesterday it will target a federal funds rate of between zero and 0.25 percent. The median forecast among 85 economists surveyed by Bloomberg News was for a reduction to 0.5 percent from 1 percent. The Reserve Bank of India’s benchmark lending rate is currently 6.5 percent. The MSCI Asia Pacific Index of regional shares climbed 2.7 percent after the Standard & Poor’s 500 Index added 5.1 percent yesterday. India’s benchmark share index, the Bombay Stock Exchange’s Sensitive Index, has gained almost 7 percent this month, after three months of losses. Funds based abroad bought Indian shares worth an average $44 million a day more than they sold this month, compared with net daily sales of $46 million and $186 million respectively in November and October, according to data released by the Securities and Exchange Board of India. Offshore non-deliverable forward contracts showed traders scaled back bets for how far the currency will decline in a month. The contracts indicate the rupee will trade at 47.72 a dollar in a month, compared with expectations for a depreciation to 51.26 at the end of November. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Indian rupee forwards traded overseas are non-deliverable, meaning they are settled in dollars rather than the local currency. To contact the reporters on this story: Anil Varma in Mumbai at avarma3@bloomberg.net.

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