The rupee was on course for a third consecutive session of losses on Friday, weighed down by lower stocks and weaker regional peers.Foreign funds have sold shares worth a net $717 million this month, as accelerating inflation, slowing factory output and rising borrowing costs dampened the outlook for equities.
At 10:48 a.m. (0518 GMT), the partially convertible rupee was at 45.71/72 per dollar, 0.4 percent weaker than 45.53/54 at close on Thursday when it had touched 45.71 during trade -- its lowest since Dec. 1.
The rupee is down 2.2 percent this month. In 2010, it had strengthened 4.1 percent, helped by foreign portfolio flows of a record $29.3 billion into equities.
"Despite euro/dollar rally over 1.3350, it is important for the stock markets to hold above 18,700/5,600 to arrest rupee weakness beyond 45.85," said J. Moses Harding, head of global markets at IndusInd Bank.
The 30-share BSE index and the 50-share NSE index were both trading down 0.4 percent at 18,966.74 and 5,689.35 respectively.
A dealer at a foreign bank said there were dollar supplies at around 45.70 and this level could encourage more exporters to cash in their earnings.
The rupee should move in 45.50-45.80 band during the day, with inflows toward a follow-on share sale by Tata Steel expected to provide support.
Tata Steel, the world's seventh-largest steelmaker, aims to raise up to 34.77 billion rupees ($761 million) from the sale that closes on Friday.
However, demand for dollars from oil companies is expected to weigh on the rupee.
"The concern is from emergence of good demand for the greenback from select banks and oil companies. Given these conditions, it is important for euro/dollar to stay above 1.3350 to prevent rupee weakness into 45.85-46.10," Harding said.
One-month offshore non-deliverable forward contracts were quoted at 46.03, weaker than the onshore spot rate.
In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange and the United Stock Exchange were both at 45.7650, and at 45.7675 on the MCX-SX. The total traded volume on the three exchanges was an average $2 billion.
The U.S. dollar clung on to overnight gains in early Asian trade in the wake of upbeat data, even as the euro held its ground with investors wary of getting too bearish on the common currency after a recent rally turned sentiment around.
The euro was trading at $1.3484 keeping the two-month high of $1.3538 set on Wednesday in sight.
The dollar index, a measure of the greenback's performance against six major currencies, was down 0.08 percent at 78.763 points. Most Asian currencies were down compared with the U.S. dollar.
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