The Indian rupee gave up early gains on Thursday to end slightly weaker after the central bank stepped in, which traders said was possibly to keep exports competitive. Traders said robust inflows from foreign funds investing in Indian equities were partly mopped up by oil importers, who have been rattled by recent weakness in the local currency and firm crude oil prices.

Oil is India's biggest import and a sustained rise in prices can widen the trade deficit and put pressure on the rupee. The rupee, which analysts say is overvalued by more than 3 percent on a trade-weighted basis, ended at 43.7950/8100, off a high of 43.72 but weaker than the previous 43.75/77 close.

The local unit has lost more than 1 percent since striking a five-year high of 43.30 a dollar on February 3, when Standard & Poor's raised India's foreign currency rating.

The fall was largely engineered by the central bank, which traders say is concerned that a widening trade gap could lead to a marginal current account deficit in the fiscal year to March, compared with a surplus last year.

"The state-run banks were there throughout the day," a dealer at a private bank said. "They started pushing the rupee down from the 43.72-per-dollar mark in the morning and we expect the rupee to cede further ground in the next few days."

Copyright Reuters, 2005