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Rupee eases on mild dollar demand to 46.41/$

The rupee weakened slightly in early trade on Thursday on short covering by banks ahead of an extended weekend and some mild dollar demand from importers, dealers said.

The rupee was quoted at 46.40/41 per dollar at 11:20 a.m. after opening at 46.37/38. On Wednesday, the rupee broke a 13-day rally against the dollar to end weaker at 46.36/37.

Dealers said Wednesday's weakening was due to technical factors, with the market adjusting for the carry cost over a long weekend. Indian financial markets are closed on Friday for the Republic Day holiday.

Traders usually sell dollars in the middle of the week and buy them before the weekend to benefit from swap differentials.

Dealers said they expected foreign fund inflows and corporate dollar sales to taper, while demand from banks buying on behalf of public sector firms was likely to weigh against the rupee.

"With the month-end coming I guess there will be some buying by state-run firms," a dealer in a foreign bank said. He expected the rupee to trade in a 46.37 to 46.40 range on Thursday.

Foreign investments in Indian stocks and bonds, at $689.1 million, have been heavy this month, but on Tuesday the funds invested just $29.6 million in stocks.

State-run banks absorbed most dollar supplies on Wednesday, but dealers said they appeared to be buying for their customers and not for the central bank.

Large state-run banks often intervene on behalf of the central bank. Dealers say state-run banks have bought dollars in recent sessions to check sharp gains in the rupee.

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