MUMBAI: Rupee fell on Monday on heightened risk aversion, as regional instability fears following North Korean leader Kim Jong-il's death sent Asian currencies down, while weak local shares on worries over slowing domestic growth also dragged. At 11:04 a.m. (0534 GMT), the rupee was at 53.10/11 to the dollar, 0.8 percent weaker from its 52.70/72 close on Friday. It had rebounded last week after hitting a record low of 54.30 on Thursday on suspected central bank intervention. "Fundamentals of the Indian economy in terms of growth outlook and the trade deficit don't look good. The North Korean news has created the possibility of political instability in the region," said Ashtosh Raina, head of foreign exchange trading at HDFC Bank. "The Asian basket of currencies, which include the rupee, will be a hit," Raina said, adding the rupee could touch 53.40 in the next couple of sessions. The South Korean won slid on Monday as news of North Korean leader Kim Jong-il's death spooked investors, giving a broad lift to the safe haven U.S. dollar and exacerbating broad weakness in emerging Asian currencies. News of the North Korean leader's death dealt a further blow to investor risk appetite, which has been already dented by persistent worries about the euro zone's sovereign debt crisis. Activity in the dollar/rupee market stayed light following the Reserve Bank of India's move to reduce banks' trading limits in domestic forex market last Thursday, traders said. The RBI's move, while clamping down speculation, was likely to heighten volatility in the unit, they said. But, any downside on the rupee may also be limited as the new strictures mean the central bank is in a better position to influence the currency. "With no speculation in the market, the volumes will be low and the RBI can easily supply dollars to check the rupee slide," said a senior forex dealer with a state-owned bank. In a bid to boost dollar inflows, the RBI deregulated interest rates on non-resident external rupee deposits and ordinary non-resident accounts late Friday. The central bank's policy on the currency has been to intervene only to smoothen volatility and not target a level. The relatively small size of its kitty of foreign currency reserves compared to some other Asian economies and a widening trade deficit means the RBI need to calibrate moves in the foreign exchange market carefully. India's main share index was down more than 1.4 percent on increasing wrinkles on domestic economic trajectory. Offshore non-deliverable forwards (NDFs) were indicating further weakness, with the one-month rupee NDFs at around 53.57. The one-month onshore forward dollar premium was at 35.75 points, up from 32.5 on Friday and the three-month premium was at 93 points, up from 89. The one-year premium was at 255.75 points, higher from 245.75 points. In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX, and the United Stock Exchange were all at 53.24, with total volume at $1.38 billion.

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