Re may rise to 38.50: StanChart

India's rupee, which reached a nine- year high yesterday, will extend gains by as much as 3.3 percent in a month as lower US interest rates spur demand for higher- yielding currencies, Standard Chartered Plc said.

The currency may rise to 38.50 per dollar, the strongest since April 1998, as India's accelerating economic growth and rallying stock market attract investment from abroad, David Mann, Hong Kong-based senior strategist at Standard Chartered, said in an interview.

"The rupee will gain more in the short term from strong foreign inflows,'' Mann said. "Sentiment is quite positive across Asian stock markets following the Fed rate cut and the Sensex has been doing particularly well. The rupee may also be in demand from investors seeking higher yields.''

The rupee, Asia's best performer this year with an 11 percent advance, may outperform regional peers such as the Singapore dollar, the Hong Kong dollar and Taiwanese dollar in the coming months, Mann said. India's economy is less vulnerable to a possible U.S. economic slowdown because the country isn't so reliant on exports to the US, he said.

The Indian currency rose to 39.76 yesterday, its highest since May 1998, as the nation's benchmark share index reached a record. It was at 39.835 at 2 p.m. in Mumbai.

'Gains Won't Last'
Mann said the rupee may end the year at 39.50 as losses tied to US subprime mortgages prompt investors to cut holdings in riskier assets. The Bombay Stock Exchange's Sensitive Index, or Sensex, climbed to an all-time high of 16,928.02 today, after advancing for the past five weeks.

Global funds bought $1.14 billion more Indian shares than they sold in the week ended Sept. 21, the most in a five-day period since July 20, according to the Securities and Exchange Board of India. They invested $435.5 million in the equities the previous week.

Standard Chartered this week changed its 2007 rupee forecast to 39.50 from an earlier call for the currency to decline to 41.80. The rupee will fall to 40.50 by the end of March and 41.20 by end-June, Mann said.

"The rupee's gains may not last because more bad news is expected regarding the subprime credit crunch,'' he said. "Such news would trigger a return of risk aversion among international investors, causing demand for emerging-market assets to decline.''

Strength in the currency may also be curbed as India's central bank sells the rupee to curb a rally that threatens to erode export competitiveness, Mann said.

The Reserve Bank of India bought foreign currency for a ninth month in July, according to its latest monthly bulletin, and has purchased foreign exchange worth $38.1 billion in the first seven months of this year.

``Interventions have been by and large successful in reducing volatility,'' the central bank said in its Aug. 30 annual report.