By Khushita Vasant At 1200 GMT Latest Change USD/INR 55.47 -0.18 8.15% 2022 Bond 8.23% -2BPs Call Rate 8.05% Unch Forward Dollar Premium/Discount* July 3.315 +0.045 *Forward Dollar Premium/Discount are midpoints of bid-offer spreads MUMBAI--The Indian rupee rose against the U.S. dollar Wednesday after two sessions of losses, helped by broad weakness in the greenback ahead of key data and meetings. The dollar was at 55.47 rupees late Wednesday, compared with 55.65 rupees in Asian trade late Tuesday. Investors are playing it safe until the U.S. manufacturing and jobs data, and the conclusion of the Federal Open Market Committee's policy-setting meeting. Dull economic activity in the U.S. has raised expectations that the Federal Reserve may offer to buy more bonds to stimulate growth. Also, traders are more likely to swing into action after Thursday's European Central Bank meeting. While the rupee shadows movements in the euro and dollar, its fate is also linked to domestic reforms, where the Indian government has been found lacking, economists say. "Indeed, in the absence of decisive measures by the government and the central bank to deal with structural inflation, we do not anticipate any substantive recovery in the rupee until 2013, even if other Asian currencies rally amid improved global economic dynamics later on," a note by Standard Chartered Bank said. The house expects the pair to hold the 57.33 record high hit on June 22 as a key resistance. But, a break below the recent low of 54.17 on July 4 is unlikely. In the debt market, government bonds finished higher after a sharp sell-off in the previous session. A surprise cut by the Reserve Bank of India in banks' mandatory bond-holding requirement had hammered bond prices Tuesday .The step reduces the portion of deposits banks need to invest in liquid instruments -- mostly government bonds -- and frees up more funds to lend. The benchmark 8.15% 2022 bond finished at 99.45 rupees, compared with its previous close of 99.35 rupees. While prices rose, lesser volumes indicate that bonds are clearly under pressure on reduced inclination by traders to hold sovereign debt. However, a Barclays note recommends staying long on bonds as it believes yields are unlikely to jump on a sustained basis, given easier liquidity conditions and lower growth risks. It estimates the cut in bond-holding ratio will reduce banks' demand for sovereign debt by about 650 billion rupees. But, "the impact on bond yields is unlikely to be as negative as that figure suggests." "Muted trend in credit growth means commercial banks are likely to have more incentive to retain their current bond holdings unless they see a pickup in credit growth," Barclays said. Write to Khushita Vasant at khushita.vasant@dowjones.com

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