* Rupee ends at 54.73/74 per dlr vs 54.80/81 on Friday
* Traders say curbs on gold imports prompts short-covering
* WPI data due on Tuesday to be watched for direction
By Swati Bhat
MUMBAI, May 13 (Reuters) - The Indian rupee recovered sharply from more than two-month lows hit earlier on Monday after the central bank said previously announced restrictions on gold imports would apply immediately, leading to big short-covering of rupee positions.
The rupee dropped 1.6 percent last week, its biggest weekly fall since mid-November, as banks bought gold aggressively after the Reserve Bank of India said on May 3 gold imports on a consignment basis by banks could only be done to meet genuine demand from jewellery exporters.
The RBI said on Monday those curbs would apply immediately, the very same day that data showed a surge in April's trade deficit after a 138 percent jump in gold imports.
Although a jump in the trade deficit usually raises concerns about the current account deficit, analysts attributed the jump in gold imports to frontloaded demand, and said the RBI's new curbs should dampen demand for bullion.
"As crude and gold form a major chunk of India's imports, this announcement is important and will have a positive impact on India's current account deficit," said Pramod Patil, assistant vice president, forex and money markets, at United Overseas Bank.
Patil said the USD/INR cross still faces a psychological resistance at 55, with immediate support at around 54.70 and then 54.50.
If the second support level is breached, the pair could drop to as low as 54.35, he added.
The partially convertible rupee closed at 54.73/74 per dollar, stronger compared with its close of 54.80/81 on Friday.
The rupee fell to a low of 55.0250 - its lowest since March 4 - earlier in the session as domestic shares reeled due to profit-taking after a four-week rally.
The BSE index fell 2.1 percent, marking its biggest daily percentage fall since May 2012, while the NSE index also fell around 2.1 percent, retreating from its highest close since January 2011.
Separately, data showed annual consumer price inflation eased for the second straight month to 9.39 percent, the lowest level since February 2012.
Traders will now await the wholesale price based inflation data to be released around noon on Tuesday which is expected to have eased for a third straight month in April.
Easing inflation could support the case for additional rate cuts, and the rising optimism about economic growth could potentially boost stocks, and in turn, the rupee.
In the offshore non-deliverable forwards, the one-month contract was at 55, while the three-month was at 55.50.
In the currency futures market, the most-traded near-month dollar/rupee contract on the National Stock Exchange, the MCX-SX and the United Stock Exchange all closed at around 54.88 with a total traded volume of $6 billion. (Editing by Prateek Chatterjee)
