Re drops, reversing earlier gains

Rupee fell, reversing earlier gains, on speculation importers were buying foreign exchange to save on costs. It retreated from the highest in more than a year as importers such as Indian Oil Corp, the nation’s largest refiner, may have bought foreign exchange to pay for crude oil, the price of which has increased more than 68 per cent this year.

“Importers capitalised on the increased optimism that was built in the level of the rupee,” said Viswanathan Kumar, chief currency trader at State Bank of Travancore in Mumbai. “Since dollar demand is strong, it is unlikely that the rupee will be able to hold at present levels. ”

The rupee weakened 0.2 per cent to 46.235 a dollar at the 5 pm close in Mumbai. The currency touched 45.805 on Thursday, the highest intraday level since September 24, 2008.

The rupee strengthened past 46 to the dollar for the first time since September 2008 earlier on Thursday on optimism the global economy is recovering after JPMorgan Chase & Co and Intel Corp reported earnings that beat estimates.

The rupee rose as data from the stock market regulator showed global funds bought $214.5 million of local stocks more than they sold on October 12, the most since October 1. The Dow Jones Industrial Average rose past the 10,000 mark for the first time in a year.

Funds based abroad have bought $13 billion more of the nation’s equities than they sold this year, after record sales of $13.3 billion last year.

JPMorgan, the second-largest US bank, said on Wednesday fixed-income revenue surged, helping the bank increase profit almost sevenfold. Intel, the world’s largest chipmaker, said its sales topped estimates by as much as $1 billion.

Offshore contracts indicate bets the rupee will trade at 46.20 to the dollar in a month, compared with expectations of 46.08 on Wednesday. Forwards are agreements in which assets are bought and sold at current prices for future delivery.

Bonds halt three-day slide as yields attract buyers
Bonds rose for the first time in three days on speculation the highest yields in a month attracted investors.

Yields on debt due July 2019 added 15 basis points in the past three days, the most in such a period since August.

Some investors bet the central bank may not raise borrowing costs at its meeting on October 27, according to Sanjay Arya, a treasurer at state-owned Bank of Maharashtra.

“Investors are betting that the short-term adversities have already been priced in and yields don’t have any scope to rise further,” Mumbai-based Arya said. “I am expecting a further softening of yields.”

The yield on the 6.90 per cent note due July 2019 fell one basis point, or 0.01 percentage point, to 7.35 per cent as of the 5.30 pm close in Mumbai, according to the central bank’s trading system. The price rose 0.09, or 9 paise per 100-rupee face amount, to 96.87.

The Reserve Bank of India may mop up excess money from the financial system to curb inflation and may not raise benchmark interest rates, C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, said on Wednesday.

Oil, inflation
Bonds fell earlier on Thursday on concern crude oil at its costliest in a year will spur inflation. The government said wholesale price gains quickened to 0.92 per cent in the week ended October 3 from 0.7 per cent in the preceding seven-day period. Crude oil touched $75.96 a barrel, the most since October 2008 on the New York Mercantile Exchange. Bond yields have risen this week on speculation some investors will pare holdings to raise cash for purchases at a government debt auction on Friday.

“Bonds are lower because oil is significantly costlier, adding to inflation concerns,” said S Srikumar, chief of fixed-income trading at state-owned Corporation Bank in Mumbai. “Also, some traders may be selling in the run-up to tomorrow’s auction.”

Crude oil in New York has advanced 69 per cent this year. India imports more than 70 per cent of the oil it uses.

Debt auction
The federal government plans to sell Rs 10,000 crore ($2.2 billion) of bonds maturing in 2014, 2020 and 2024 tomorrow, according to the finance ministry. It plans to borrow as much as Rs 1.23 lakh crore in the second half of the fiscal year ending March.

In the derivatives market, 10-year bond futures maturing by Dec. 31 traded at 8.03 per cent, according to the Web site of the National Stock Exchange of India Ltd. Contracts due March 31 were at 8.30 per cent.

The cost of five-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, rose. The rate, a fixed payment made to receive floating rates, advanced to 6.96 per cent from 6.93 on Wednesday.