July 3 (Bloomberg) -- India’s rupee completed its first weekly advance since May on speculation government spending will fuel growth in Asia’s third-biggest economy. The currency approached a two-week high as foreign funds bought more Indian shares than they sold for a fifth straight day and the benchmark stock index jumped the most in a week. Rail Minister Mamata Banerjee today said Indian Railways, Asia’s oldest rail network, will buy new wagons and build more coaches to upgrade infrastructure and fuel economic expansion. “Efforts of policy makers and their objectives do not appear to be unrealistic, which is generating some positive interest,” said Arun Nagarajan, a currency trader at Kotak Mahindra Bank in Mumbai. “The rupee should continue its rally based on this sentiment.” The rupee rose 0.5 percent this week to 47.89 per dollar at the 5 p.m. close in Mumbai, according to data compiled by Bloomberg. It gained 0.1 percent today. The Bombay Stock Exchange Sensitive Index, or Sensex, has rallied almost 55 percent this year as overseas investors bought $5 billion more Indian shares than they sold. The gauge rose 1.7 percent today. Banerjee today said state-owned Indian Railways will buy 18,000 wagons and set up a factory to make 500 coaches a year. Economic Growth The $1.2 trillion economy may expand as much as 7.75 percent this year amid signs of a “bottoming out” in the U.S. and harvests benefiting from monsoon rains, the finance ministry said in the annual Economic Survey released yesterday. Growth could be as little as 6.25 percent if there are delays in a U.S. revival, the report said. The rupee will drop almost 6 percent in six months to as low as 51 per dollar as a delayed global economic recovery spurs capital outflows, according to Bank Julius Baer & Co. Foreign funds will sell the nation’s equities, following the benchmark stock index’s best quarterly performance in 17 years, as a protracted slump overseas drags the local economy down, said Venkatraman Anantha-Nageswaran, chief investment officer for Asia Pacific at Bank Julius. ‘Risk Aversion’ “The change in demand patterns in the world’s biggest economies are not encouraging, keeping the rupee hostage to the forces of increasing risk aversion,” said Singapore-based Anantha-Nageswaran, who manages $252 billion of assets. “There isn’t much room for sentiment to improve. The downside risks are very high as a lot of improvement has been discounted.” The rupee fell 1.7 percent last month, the worst performance among the 10 most-active currencies in Asia outside Japan. U.S. employers cut more jobs than economists forecast in June and the unemployment rate rose to the highest in almost 26 years. Payrolls declined by 467,000 after a revised 322,000 drop in May, the U.S. Labor Department said yesterday. The jobless rate climbed to 9.5 percent, a 26-year high. Offshore forwards contracts indicate bets the rupee will trade at 47.98 in a month, compared with expectations a week ago for 48.24. Forwards are agreements in which assets are bought and sold at current prices for future delivery.

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