Rupee hurt by month-end dollar demand

The Indian rupee weakened on Tuesday on the back of month-end dollar demand from importers and a fall in domestic shares, but bonds gained, tracking a fall in global crude oil prices in a session marked by low trading volumes.

Movement in foreign fund flows is likely to be a key determinant of market direction in the near-term as most foreign funds stay light on investments towards the end of the year.

"There is good support for the USD/INR at 63 levels, while 63.90 should be a strong resistance, keeping the pair within that range until the year-end," said Paresh Nayar, head of fixed income and foreign exchange trading at First Rand Bank.

The partially convertible rupee closed at 63.28/29 per dollar, weaker than Monday's 63.24/25.

The benchmark 10-year bond yield closed 4 basis points lower at 7.92 per cent.

Shares snapped their three-day winning streak as blue-chips such as ICICI Bank fell on risk aversion after Chinese stocks posted their biggest daily drop in two weeks, while caution prevailed a day ahead of the monthly derivatives expiry.

But traders said dollar sales by state-run banks and exporters helped the rupee recover from its session low of 63.50, offsetting greenback purchases from importers.

Bonds, however, gained as Brent crude steadied around $60 a barrel on Tuesday, under pressure from a supply glut but supported by forecasts of stronger economic data from the United States.

Bonds were also helped by strong demand from foreign investors for the unutilised debt investment limits.

NewsRise Financial reported that India attracted Rs 56.53 billion ($893.6 million) in bids for 26.74 bln rupees of limits on offer.

The cut-off was 74 bps.

In the overnight indexed swap market, the benchmark five-year swap rate closed 4 bps lower at 7.27 per cent, while the one-year rate fell 3 basis points to 7.85 per cent.