* Gokarn:will take steps as needed to stabilise FX markets * Weak local shares, dollar demand from oil cos weigh * Cbank steps last week hit dlr/rupee trade volumes By Aditya Phatak MUMBAI, Dec 20 (Reuters) - The Indian rupee reversed all intraday gains to close steady on Tuesday as traders pared some long-dollar positions after a central bank deputy said more steps would be taken, if needed, to bring stability to the domestic forex market. The rupee closed at 52.87/88 to the dollar, little changed from Monday's level of 52.88/90, after touching the day's low of 53.09 earlier. "Gokarn mentioned the RBI has other weapons in its arsenal to use in the foreign exchange market, which means the central bank is willing to take additional steps to arrest the rupee's fall," said a trader with a foreign bank, indicating a knee-jerk recovery in the rupee was inevitable. Last Thursday, the central bank reduced net overnight open position limit of banks to curb excessive volatility and shore up the rupee, which had hit an all-time low of 54.30. Following the Reserve Bank of India's curbs on trading, volumes in the dollar-rupee onshore spot market have fallen sharply from the usual $2 billion to $3 billion, traders said. "It has become a completely flow-driven market," said a senior foreign exchange dealer with a private-sector bank. "Dollar demand is there as people like importers have no other option but to buy. But this buying too is on a very gingerly pace due to worries of more sledgehammer actions from the RBI," the forex dealer said. To offset the impact of trading curbs and attract dollar inflows, the central bank has removed interest rate ceiling on non-resident external rupee deposits and allowed micro-finance institutions to raise up to $10 million through external commercial borrowings. "Despite the announcement of remedial measures to curb depreciation, rupee is likely to remain under pressure in the short-to-medium term due to cyclical, structural, and global headwinds," said Shubhada Rao, chief economist at YES Bank in a research note. Rao expects rupee to be around 53 against the dollar at the end of the current fiscal year, but appreciate to 46 by the end of calendar year 2012. Earlier in the day, K.C. Chakrabarty, another deputy governor of the central bank, said there was no reason for the rupee to not weaken, given the country's large deficit and other weak macroeconomic fundamentals. The offshore non-deliverable forwards (NDFs) indicated further weakness, with the one-month rupee NDFs at around 53.34. The one-month onshore forward dollar premium were at 38.25 points, up from 37.5 on Monday, while the three-month premium was at 100.5 from 98. The one-year premium was at 272 from 267.25. In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange ended at 53.0375, and at 53.0425 on both the MCX-SX and the United Stock Exchange. Total volume was at $3.73 billion. (Editing by Malini Menon)

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