By Swati Bhat
MUMBAI (Reuters) - The rupee weakened on Monday, tracking offshore rates and as month-end dollar demand from importers dragged the currency lower, prompting the central bank to step up its dollar sales in late trade, pulling it off session lows.
Sustained foreign selling in equities also continued to raise concerns about the gaping current account deficit.
India's Finance Minister P. Chidambaram met foreign investors on Saturday to seek suggestions on attracting dollar inflows, according to local media reports.
The reports quoted Secretary for Department of Financial Services Rajeev Takru as saying the government could announce some measures in 8-10 days.
India urgently needs to attract capital as foreign institutional investors (FIIs) have sold about $4.2 billion in bonds this year. Adding to concerns, overseas funds are also shedding some of their stock positions, having sold about $750 million in equities over the previous six sessions.
Still, traders remained sceptical about whether India can attract foreign capital to help narrow a record high current account deficit despite the surge in debt yields, as growth is stuck at a decade low while an expected wind down in U.S. monetary stimulus is expected to hit emerging markets.
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"FII debt investors in India will come back only if there is currency stability but not because of a little higher interest rate," said Samir Lodha, managing director at QuartArt Market Solutions.
Eleven of 17 economists polled by Reuters said the currency will be the top priority for incoming central bank Governor Raghuram Rajan but the consensus showed it will likely weaken to 69 per dollar before rising.
The partially convertible rupee closed at 64.30/31 per dollar, falling 1.7 percent from its close of 63.20/21 on Friday. The unit moved in a wide range of 63.65 to 64.75 during the day.
Traders said heavy central bank intervention via state-run banks, starting around 64.75 levels, helped the rupee recover towards close. The central bank has been spotted intervening in the market in late trade repeatedly in recent months.
It fell to a record low of 65.56 last week, and has lost 14.5 percent so far this year.
Monday's fall tracked the one-month offshore non-deliverable forward rate, which was being quoted at 65.02 per dollar, compared to the onshore one-month forward rate of 64.88.
Traders also said importer demand for dollars was key in pressuring the rupee lower as dollar demand typically peaks at the month-end when importers are required to make payments.
"Oil companies and importers who missed the late down move in the dollar on Friday were buying dollars today," said Vikas Babu Chittiprolu, a senior foreign exchange dealer with state-run Andhra Bank.
The outlook for the rupee will likely depend on global developments in the near-term, especially by movements in emerging markets, traders added.
The Indonesian rupiah hit a fresh four-year low on Monday on sustained worries about another country with a large current account deficit.
(Reporting by Swati Bhat; Editing by Kim Coghill and Sunil Nair)