As Of 1200 GMT Latest Change USD/INR 44.21 +0.24 7.80% 2021 Bond 8.23% -3 BPs Call Rate 8.00% -5 BPs Forward Dollar Premium/Discount* July 1.530 -0.22 *Forward Dollar Premium/Discount are midpoints of bid-offer spreads MUMBAI (Dow Jones)--The Indian rupee recovered from a two-and-a-half month low against the U.S. dollar in a volatile session Tuesday as a late pullback in local stocks helped support the local unit. The U.S. dollar was trading at INR45.21, after rising to INR45.39 for the first time since May 25, compared to INR44.97 in late trading on Monday. The rupee wilted against the U.S. currency early in trade as stocks fell, but a recovery in stocks and selling by exporters supported the rupee and pushed the greenback back to as low as INR45.07 late in the session. The Bombay Stock Exchange's Sensitive Index fell 0.8%, to end at 16,857.91 after recovering from intraday lows of 16,432.00. Still, "short-term sentiment for the Indian rupee remains weak. Foreign funds will continue to pull from the Indian stocks on global risk aversion sentiment," said S. Sundar, head of treasury at City Union Bank. Another key factor, traders said, is the risk of central bank intervention to ward off an excessively sharp fall in the rupee. On Monday, the Reserve Bank of India said it will maintain adequate rupee and foreign currency liquidity to prevent excessive volatility in rates and currency markets. The Bombay Stock Exchange's Sensitive Index fell 132.27 points, or 0.8%, to end at 16,857.91 after slipping to as low as 16,432.00 during the day. In the sovereign debt market, government bonds shed early gains after a sharp rally in the morning was halted by a recovery in crude oil prices, sparking fresh inflationary concerns. The benchmark 7.80% 2021 ended at INR97.17, after touching an intraday high of INR97.70 and compared to INR96.99 at Monday's close. The mid-session slip came as global crude oil prices firmed as global stocks bounced off their lows, bolstering demand for growth sensitive commodities, such as crude. But traders drew some comfort from the finance minister's comments indicating that global growth hiccups could cause a fall in global commodity prices, which would help ease domestic inflationary pressures and limit the government's subsidy bill. "The end of the rate hike cycle in sight, commodity prices putting downward pressure on inflation and global growth concerns" are the reasons for a positive take on India bonds said Vivek Rajpal, India rate strategist at Nomura. Some traders said that the two-year extension of the current RBI governor's term could indicate that the current central bank regime's aggressive monetary stance could continue. "The market is giving a thumbs down to Subbarao's extension because of his monetary tightening bias," said a dealer with a privately-run bank. The central bank during Subbarao's previous term has hiked rates 11 times since March 2010, the last one by a higher-than-expected 50 basis points, to temper inflation that is hovering close to double digits. -By Sourav Mishra, Dow Jones Newswires, +91 22 6145 6114;

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