mahikarnam

The rupee strengthened on Tuesday as global oil prices fell to near three-month lows, calming nerves about a widening trade deficit and traders said they were watching the local share market to gauge fund flows.

At 10:35 a.m., the partially convertible rupee was at 42.28/29 per dollar, 0.5 percent stronger than 42.49/50 at close on Monday.

"The rupee opened stronger as oil has come down very significantly," said a senior currency trader with a private bank.

Oil hovered near three-month lows around $120 a barrel as concerns over tight supplies eased amid evidence of rising OPEC output and declining U.S. demand in the face of a weak economic outlook.

"The dollar-rupee has strong support at 42.35. However, the stocks are going to be key, if markets go up then we may see it break this level and go to 42.20-25, and if they are negative then the rupee may depreciate to about 42.43-42.45," the trader said.

The BSE Sensex opened down and then seesawed between gains and losses as lower oil prices eased concerns about inflation, but worries about the health of the global economy and financial sector weighted.

Dealers said a lower premium in the non-deliverable forwards also boosted sentiment for the rupee.

One-month offshore non-deliverable forwards were quoting at 42.34/44, slightly weaker than the onshore rate.

"The difference in prices in the NDF is just about 7 to 8 paise (0.07-0.08 rupee) as against the average 15 to 20 paise, which is helping the rupee," a dealer with a foreign bank said.