The rupee made some headway against the dollar on Tuesday, helped by a strengthening euro and yen overseas and a rising domestic stock market, but traders said the central bank checked gains to keep exports competitive. The rupee ended at 43.75/76 per dollar, up from the previous close of 43.8150/8300, but off an intra-day high of 43.66 hit in afternoon deals. The dollar fell against the euro and the yen by more than 1 percent in European trade on growing concerns that central banks were diversifying their reserves out of US dollar assets.

"The Reserve Bank, it seems, does not want a fast appreciating rupee," said a dealer at a foreign bank. "The foreign fund inflows were good but most of these were mopped up by the state-run banks, who started buying dollars at 43.66."

By mopping up foreign investment in stocks, the Indian central bank has pushed down the rupee, which analysts say is still overvalued by 3 percent, by more than 1 percent since it struck a five-year peak of 43.30 against the dollar on February 3.

Copyright Reuters, 2005