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Rupee ends at one-week high, but mood cautious

The rupee rebounded from a weak start to end at a one-week high, but the undertone was cautious a day before the proposed prayer ceremony at the disputed site in Ayodhya.

The local currency ended at 48.7075/7175 on Thursday, off the day's low of 48.74 and slightly firmer than Wednesday's 48.7150/7250.

Traders said steady dollar sales by banks offering custodial services to overseas funds and intermittent foreign direct investment flows helped the rupee bounce back from early lows.

Data from the capital market regulator showed overseas funds had invested a net $100.8 million worth of Indian assets between March 1-12, taking investments in 2002 to $729.7 million.

Thursday's dollar inflows helped the rupee recover from a two-paise drop in early deals on customary dollar purchases by banks which went short on Wednesday to benefit from weekend swap differentials.

But traders said sentiment was edgy, after the Vishwa Hindu Parishad responded ambiguously to a Supreme Court ruling on Wednesday outlawing it from holding the prayer ceremony on Friday.

"Although the central bank is unlikely to allow much volatility there are some fears that capital flows may get affected if riots start," said a chief dealer in a foreign bank.

Security has been beefed up by the Bharatiya Janata Party-led government, which is under pressure to maintain peace.

Ayodhya has been a trouble spot for many years. A 16th-century Babri mosque was razed by zealots a decade ago triggering nationwide riots that killed more than 3,000.

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