MUMBAI: The Indian rupee surged to a near two-week high on Thursday, as local shares rallied on the back of global gains, while strong demand from foreign investors in domestic debt auction seen on Wednesday also promised more dollar inflows, lifting sentiments.
Global risk appetite got a shot in the arm after the world's six major central banks moved to tame a liquidity crunch for European banks by providing cheaper dollar funding.
At 12:20 p.m. (650 GMT), the partially convertible rupee was at 51.66/67 per dollar, stronger than its 52.20/21 previous close, a level last seen on Nov. 21.
"With this coordinated move by global central banks, we will see inflows into emerging market stocks like India again," said Ashutosh Raina, chief dealer of HDFC Bank.
"Strong bidding interest was seen in the bonds limit auction yesterday which will bring money in the government and corporate bonds in the short term, easing the liquidity situation."
India's auction of an enhanced $10 billion debt limit for foreign institutional investors (FIIs) was oversubscribed with bids worth $14 billion, four market sources said, with strong demand seen for government and corporate bonds as there were no restrictions on investments.
The rupee dropped 6.7 percent in November, taking its fall so far in 2011 to 14.37 percent. The monthly fall was the biggest since at least January 1995.
Indian shares gained as much as 3.7 percent in early trade on Thursday on hopes for a surge in foreign fund inflows after the world's six major central banks moved to tame a liquidity crunch for European banks. The index later pared some gains to trade 2.88 percent higher at 16,586 points.
Rupee's rise will be limited by importer demand for dollars, especially from oil importers, traders said. They expect the unit to trade in a 51.50-52.10 per dollar band in the near term.
The euro stabilised on Thursday after rallying in the previous day, while the Australian dollar pared some of its hefty gains.
The one-month offshore non-deliverable forward contracts were quoted at 51.95.
The one-month onshore forward dollar premium was at 27.50 points from 28.75 on Wednesday, the three-month was at 65.75 points from 64, and the one-year premium was at 177.50 points, from 165.25.
In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange, the United Stock Exchange and the MCX-SX were all at 52.00, with total volume at $2.1 trillion.
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