* Dollar's strength overseas weighs on rupee sentiment * Traders eyeing local shares for cues on fund flows * Rupee likely to be rangebound, dealers say (Updates to early trade) MUMBAI, Feb 10 (Reuters) - The Indian rupee dropped on Tuesday, tracking a broad dollar rally overseas while a shaky stock market also weighed on sentiment. At 10:05 a.m. (0435 GMT), the partially convertible rupee was at 48.72/73 per dollar, off an early low of 48.80 but still 0.3 percent weaker than its Monday's close of 48.57/58. "The dollar is stronger against the Asian currencies, which is why the rupee has opened weaker today," the chief dealer with a state-run bank said. "The demand and supply looks well matched at the moment, so the rupee looks rangebound between 48.65-48.80 today," he said. The euro fell 1 percent against the dollar and the yen on Tuesday after a report that Russia will request negotiations with European and other foreign banks to postpone repayment of private-sector debt. [USD/] The dollar index <=USD>, a gauge of the U.S. unit's performance against other major currencies overseas, was up 0.75 percent. Dealers said they would also be eyeing the domestic share market for cues on fund flows. Indian shares .BSESN turned negative after opening marginally higher, with investors awaiting a U.S. economic rescue plan that will set the trend for world markets. [.BO] "There is also some arbitrage happening between the onshore and offshore market," a dealer with a state-run bank said adding that some foreign banks were buying dollars in the spot market. One-month offshore non-deliverable forward contracts PNDF were quoting at 48.80/90, weaker than the onshore spot rate, providing an arbitrage opportunity to banks. Banks buy dollars onshore and sell them offshore to profit from the price differential in the two markets. (Reporting by Swati Bhat; Editing by Ranjit Gangadharan)

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