By Swati Bhat
MUMBAI (Reuters) - The rupee ended marginally stronger on Wednesday as sharp gains in domestic shares offset the dollar's rise versus most major currencies, particularly the euro.
Traders said there was good two-way interest in local currency markets, with importers' demands for dollars offsetting foreign banks' sales of the greenback.
The range-bound rupee contrasted with a rally in bonds and stocks after Reserve Bank of India (RBI) Governor Duvvuri Subbarao said on Tuesday he had taken note of falling inflation, reinforcing bets about future rate cuts.
Rate cuts tend to bolster confidence about economic growth and boost stocks, thus shoring up the rupee, but the global gains in the dollar and continued concerns about current account deficit have prevented the local unit from gaining.
"The rupee recovered pretty well from the day's low of 54.91 once the stock market started rallying, but there was good corporate demand as well. The euro's fall also hurt," said Ashtosh Raina, head of foreign exchange trading at HDFC Bank.
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"I am not seeing much impact of the rate cut expectations on the forex market as it is still far away. I expect the rupee to hold in the 54.50 to 55.00 range for some more time," Raina added.
The partially convertible rupee closed at 54.78/79 per dollar, a little stronger compared with 54.81/82 on Tuesday. The unit moved in a 54.6550 to 54.91 range during the session.
Domestic shares rose more than 2 percent to their highest close since January 2011, as banking shares rallied.
However, the euro fell to a six-week low against a buoyant dollar, hurt by worse-than-expected German and French gross domestic product data that strengthened the case for more monetary easing in the euro zone.
In the offshore non-deliverable forwards, the one-month contract was at 54.99 while the three-month was at 55.49.
In the currency futures market, the most-traded near-month dollar/rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all closed at around 54.93 with a total traded volume of $4.76 billion.
(Editing by Anupama Dwivedi)