The Indian rupee fell on Friday tracking weakness in the local stock markets and a stable dollar overseas.

However, the Indian unit may be supported by exporters' dollar sales in the day, dealers said.

India may also not see a sharp reversal of equity flows even as the year-end draws closer given that inflows have been driven by strong economic fundamentals, dealers said.

"The key to the rupee is portfolio inflows into equity and the how dollar is behaving globally. The portfolio inflows have been momentum-driven," said Hitendra Dave, head of global markets, HSBC India.

At 10:18 a.m. (0448 GMT), the partially convertible rupee was at 45.31/32 per dollar from Thursday's 45.22/23 close, when it had touched 45.58, its lowest since Sept. 24.

Dealers expect the rupee to move in the 45.05-45.35 band. "Exporters were selling (dollars) yesterday and they may come and sell again today," said a senior dealer at a foreign bank.

Foreign funds have bought shares worth a record $28.5 billion so far in 2010, compared with last year's $17.5 billion, which has helped the rupee gain 2.7 percent year-to-date.

Indian shares fell as much as 0.8 percent so far on Friday, tracking Asian peers.

Dealers also expect the rupee to strengthen once the stock market regulator announces an auction for the enhanced foreign investment limit in debt.

"There will be some knee-jerk reaction once the auction of the debt limits are announced," the senior dealer said.

The government had doubled the cap on foreign investment in government bonds to $10 billion, and raised that on corporate bonds by $5 billion to $20 billion, on Sept. 23. The revised limits have not yet been auctioned.

The benchmark 10-year bond yield fell 2 basis points on the day to a one-week low of 8 percent on Friday, on top of a 5 basis point fall in the previous session on talks that the enhanced debt limit could be auctioned soon.

The euro held onto its recent gains on Friday on budding hopes that Ireland is near a deal to shore up its banks and budget deficit, although the currency stopped short of breaking above major resistance.

The dollar index, which tracks the greenback's performance against a basket of major currencies, was marginally up 0.01 percent at 78.628. It had touched a seven-week high of 79.461 on Tuesday.

One-month offshore non-deliverable forward contracts were quoted at 45.54 to a dollar, weaker than the onshore spot rate, suggesting a bearish near-term outlook.

In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange, MCX-SX and United Stock Exchange closed at 45.3575, 45.3500 and 45.3575, respectively, with the total traded volume on the three exchanges at a moderate $1.2 billion.