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Friday, December 14, 2007

Rupee on the rise

India's rupee headed its third weekly gain in a row this week on speculation declining interest rates in the U.S. will prompt global funds to boost holdings of high-yielding emerging-market assets. The rupee gained after the Federal Reserve cut its key interest rate this week to the lowest in almost two years. Funds based abroad have bought a record amount in Indian debt this year, more than doubling holdings as the nation's economic growth accelerated to the fastest rate since 1989.

The rupee rose to 39.35 per dollar as of 11:05 a.m. Friday in Mumbai, up from 39.3975on Thursday. Its 12.4 percent gain this year is the second-best performance by an Asian currency after the Philippine peso.

The Federal Reserve cut its benchmark rate on Dec. 11 to 4.25 percent, the lowest since January 2006, from 4.5 percent to prevent a housing slump from slowing growth in the world's biggest economy. The Reserve Bank of India's benchmark rate is 7.75 percent, the highest in five years.

Overseas funds bought $2.05 billion more Indian debt than they sold this year, compared with $881.3 million for the whole of 2006, data released by the Securities and Exchange Board of India showed. Their Indian debt holdings are currently $3.37 billion, compared with $1.33 billion at the end of 2006.

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