Dollar purchases by the Indian central bank took a pause on Wednesday, traders said, allowing the rupee to register modest gains amid rising foreign equity investments into the local market and a weaker dollar overseas. Traders said they were keenly eyeing comments from US Federal Reserve chief Alan Greenspan's testimony before the Senate Banking Committee later in the day for cues.

"If his comments are bearish for the dollar, we could see the rupee appreciating a bit more from here," said a trader at a foreign bank. "If it's the other way round, we can expect some weakness and the central bank to drive down the rupee."

The rupee finished Wednesday at 43.7500/7700, up from the previous close of 43.8150/8200.

Traders said dollar purchases by the central bank seen in the past six sessions were replaced by demand from oil importers and other corporates.

The rupee, which analysts say is overvalued by 3 percent on a trade-weighted basis, has lost more than one percent since it struck a five-year high of 43.30 on February 3, when Standard & Poor's raised India's foreign currency rating.

Copyright Reuters, 2005