The Indian rupee on Thursday lost some steam to trade a tad up as oil importers' dollar demand and dollar shortcovering bouts almost matched the boost given by local share gains and the euro's gains against the greenback.
A strong GDP growth number for the September quarter released on Tuesday continued to cheer the stock market, in turn aiding in the rupee's rise.
The local unit, which has strengthened in the past two straight sessions, posted its biggest single-day gain in two months on Wednesday.
At 11.25 a.m. (0555 GMT), the partially convertible rupee was at 45.31/32 per dollar, slightly up from its 45.37/38 close on Wednesday, when it had hit 45.3350, its highest since Nov. 22.
"I don't expect the rupee to strengthen sharply from here unless euro is at $1.32. There is a bit of short-covering in USD/Asia," said Rohan Naik, head of forex trade at Standard Chartered Bank in Mumbai.
Indian shares were up 0.7 percent on Thursday, tracking strong Asian markets and buttressed by hopes for stronger growth outlook for domestic economy and corporate earnings.
India's economy grew faster-than-expected in the second quarter of 2010/11, boosted by farm output and manufacturing, putting pressure on the Reserve Bank of India to tighten monetary policy although a rate hike next month looks unlikely.
Dealers expect the rupee to move in 45.20-45.50 band in the day.
The rupee's bullish trend is very much intact, said J. Moses Harding, head of global markets at IndusInd Bank .
Capital inflows towards the series of public issues should also keep the Indian unit supported.
State-run Shipping Corporation of India is likely to raise up to $259 million through a share sale. The issue opened on Tuesday and will close on Friday.
"For today, let us watch rupee at 45.25-45.50 and track euro/dollar move at 1.3050-1.3200 and Sensex at 19,800-20,150 points," Harding said.
Standard Chartered's Naik expects oil importers' dollar demand at 45.30 levels.
The euro sat tight after surging higher the previous day, as investors waited to see if European Central Bank policymakers' meeting later on Thursday would take any measures to alleviate worries over euro zone debt.
The euro, which jumped more than 1 percent to $1.3183 on Wednesday, eased to $1.3096 on Thursday as players turned more cautious, but it remained well above an 11-week low at $1.2969 set on Tuesday.
The dollar index, which tracks the greenback's performance against a basket of other major currencies, was up 0.06 percent at 80.760 points.
Foreign funds bought $258.64 million worth of shares on Tuesday, latest data shows, taking net investments in shares to a record of around $29 billion so far in 2010, on top of the $17.5 billion purchases last year.
The one-year onshore dollar premium was up at 214.25 points from Wednesday's close of 210 points, as the rupee gave up some gains.
One-month offshore non-deliverable forward contracts were at 45.55, weaker than the onshore spot rate, suggesting a bearish near-term outlook.
In the currency futures market, the most traded near-month dollar-rupee contract on the National Stock Exchange, MCX-SX and United Stock Exchange were at 45.4950, 45.4925 and 45.4975 respectively, with the total traded volume on the three exchanges at a moderate $1.7 billion.