* Demand for rupee after New York close on Monday
* Domestic equities rise 1.3 pct on lower inflation
* RBI likely to buy dollars to hold rupee above 51-IndusInd
(Updates to mid morning)
MUMBAI, Jan 17 (Reuters) - The Indian rupee
strengthened on Tuesday on pent-up demand from companies after
the U.S. market holiday, positive local shares and a firmer
euro.
At 10:30 a.m. (0500 GMT), the rupee was at 51.07/08
to the dollar, up from Monday's close of 51.36/37.
"U.S. markets were closed yesterday and triggered one-way
sales, so we are seeing bunched up demand today," said J. Moses
Harding, head of the asset-liabilities committee at IndusInd
Bank.
Indian shares rose 1.3 percent, helped by Monday's more
positive news on inflation.
The euro edged higher on short-covering as riskier assets
drew broad support from data showing China's economic growth
slowed less than expected in the fourth quarter.
Inflows have been encouraged by the government's moves to
increase the amount of debt that foreign investors can buy as
well by as the removal of a ceiling on interest rates paid on
foreign currency accounts offered to non-resident Indians.
"With trade deficits likely to persist if not expand, these
stop-gap measures to attract debt flows can only temporarily
stabilise the rupee. But they can cause vicious cycles should
they reverse," said Credit Suisse in a note to clients.
One-month offshore non-deliverable forward contracts
were quoted at 51.06, indicating some weakness in the short-term
in the onshore spot rate.
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
around 51.21 on total volume of $1.5 billion.
IndusInd's Harding said the Reserve Bank of India would
probably buy dollars aggressively to prevent the currency from
rising beyond 51 to the dollar.
"Consolidation in spot rupee at 51-52 would be in order and
considered good for all stake holders," he said.
