Feb 29 (Reuters) - The Indian rupee was knocked off its three-week high in afternoon trading on Wednesday as local stocks reversed early gains, but expectations of strong capital inflows limited the currency's fall.
* At 2:40 p.m. (0910 GMT), the rupee was at 48.98/99 to the dollar, down from 48.83 -- its highest since Feb. 7, according to Thomson Reuters data. It had settled at 49.0750/0850 on Tuesday.
* Traders said an auction of state-run Oil and Natural Gas Corp's shares is expected to see strong bidding interest from foreign investors, which will support the rupee.
* The government aims to raise at least $2.5 billion by selling a 5 percent holding in the country's biggest oil producer through an auction on Thursday.
* Caution in the financial markets ahead of results of the European Central Bank's long-term refinance operation at around 1020 GMT also weighed on the rupee, traders said. The LTROs are awaited for clues on euro zone's economic health and global growth trajectory. (Reporting by Aditya Phatak; Editing by Aradhana Aravindan)
