The rupee oscillated in a thin band on Wednesday, weighed down by stock market losses but supported by state-run banks, who traders said sold dollars in an effort to stop it from falling back to 43 per dollar.
The partially convertible rupee ended at 42.895/905 per dollar, barely moved from Tuesday's close of 42.885/895. It had hit a 13-month low of 43.21 last month. One-month offshore non-deliverables forward contracts were quoting at 42.98/43.08, weaker than the onshore rate.
"There was selling of dollars by (state-run) banks above 90 levels and foreign banks were buying dollars below that level, so the match in demand-supply kept it in a tight range," said the senior manager of treasury at a private bank.
The main share index fell 1.75 percent, snapping a two-day rise as political uncertainty worries emerged after a meeting between the government and its left allies to break a deadlock over the nuclear deal was put off.
Dealers expected the rupee to bounce around in a band of 42.80 to 42.95 per dollar in coming days, with the market watching stocks for clues on foreign fund flows and the central bank is expected support the rupee below 42.95 per dollar.
Foreigners bought $92 million of stocks on Tuesday, but they are net sellers of $5.7 billion so far in 2008, helping push the rupee down more than 8 percent.
Last year the rupee had gained more than 12 percent when foreign funds bought a record net $17.4 billion of shares as the stock market rose 47 percent.