MUMBAI (Reuters) - The 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.
The BSE Sensex 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.
(Reporting by Archana Narayanan; Editing by Ted Kerr)
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