Reuters

Mumbai, Nov 11: The Indian rupee closed at its lowest in a week on Tuesday as a sharp fall in the domestic equity market raised concerns of more foreigners repatriating funds, pressuring the currency lower.

The partially convertible rupee closed at 48.1250/1400 per dollar, its weakest since Nov. 4, and 1.6% below 47.35/37 at close on Monday.

On October 27, the rupee had fallen to a record low 50.29. "There was very good (dollar) demand seen from custodial banks since morning. Importers were there in the market but most of the demand was from the FIIs," the chief dealer with a state-run bank said referring to foreign institutional investors.

India's main share index fell 6.61%, its biggest fall in more than two weeks, reversing most of the 8%-plus rise of the previous two days as fears of a protracted global recession saw investors pare risks.

Foreign institutional investors have bought shares worth $500 million in November, but have been net sellers of $12.6 billion so far in 2008. They bought a record $17.4 billion last year. Dealers said reports of a fall in exports in October affected sentiment as dollar inflows into the economy would slow.

Local media said exports in October dropped 15% from the same month a year earlier. The government issued 220 billion rupees of special oil bonds to three state-run oil firms to partly compensate them for selling fuel at below market prices. That will reduce dollar demand in the currency market, as oil firms can now borrow forex directly from the central bank by giving these bonds as collateral.

"The (oil bonds issue) was expected so did not affect the market much. Exports are taking a hit as volumes and turnover has come down due to the recession in US and Europe and that is why we are seeing thin dollar supplies, hurting the rupee," the dealer said.

One-month offshore non-deliverable forward contracts were quoting at 48.61/76, weaker than the onshore spot rate, indicating a bearish outlook for the currency.