Indian rupee hits record low; cbank helps recovery

* Rupee bounces off lifetime lows, cbank seen intervening

* Near-term sentiment for rupee remains bearish

* Stocks fall 7 pct, raising concerns about further outflows

By Swati Bhat

MUMBAI, Oct 10 - The Indian rupee bounced off a record low on Friday after the central bank sold dollars through state-run banks in an attempt to prevent the currency from further steep falls as the stock market dropped sharply.

The partially convertible rupee <INR=IN> ended at 48.38/43 per dollar, 0.8 percent lower than 47.99/48.01 at close on Wednesday. Markets were closed on Thursday for a holiday.

The rupee fell to a lifetime low of 49.30 per dollar in early trade, after which traders said the central bank acted aggressively to support it, selling up to $2.5 billion.

"It is a very difficult market, very thin liquidity. The RBI has now provided rupee liquidity by the CRR cut, so they are likely to keep intervening in the forex market," a senior dealer with a private bank said.

The central bank's intervention has contributed to a squeeze on rupee liquidity in the domestic banking system that has pushed overnight cash rates to 19-month highs of 23 percent.

The central bank on Friday said it would increase a previously announced 50 basis point cut the cash reserve ratio to 150 basis points, effective from Oct. 11, saying the move would free up around 600 billion rupees.

"The rupee could head towards 50 per dollar within this month, with the only things barring it is some decline in risk aversion among investors and steady gains in the stock market for at least three to four days," the dealer said.

India's main share index <.BSESN> tumbled 7.1 percent on Friday to post its biggest weekly fall in nearly 18 years as panicky investors joined a global selloff on recession worries, with weak industrial data adding to the gloom. See [.BO].

Foreign funds have so far sold a net $10.3 billion worth of Indian shares in 2008, after buying a record net $17.4 billion last year.

• Email Story
• IM Story
• Printable View
• Blog This

Recommend this article

Related Articles: Asia

• As stocks bleed, G7 plays down quick fix for crisisAFP - 2 hours 57 minutes ago
• Lawson gets rights to am/pm Japan talks - reportReuters - Saturday, October 11
• Seiko Epson seen meeting oper profit target-reportReuters - Saturday, October 11
• Lehman's Asia unit to reopen under Nomura-reportReuters - Saturday, October 11
• NKorea urges all-out struggle to rebuild economyAFP - Saturday, October 11