By Swati Bhat
MUMBAI (Reuters) - The rupee strengthened on Wednesday as domestic shares edged higher to post their first daily gain so far this year, although broader sentiment remains cautious ahead of key inflation data next week.
Traders said custodian banks were also spotted selling dollars, helping offset greenback demand from oil firms - the largest buyers of dollars in the domestic currency market.
Trading is likely to remain range-bound until India posts wholesale and consumer inflation next week, which will help determine whether the Reserve Bank of India (RBI) raises interest rates or leaves them unchanged after tightening monetary policy by 50 basis points over September and October.
"Inflation data will be the next thing that is being keenly awaited," said Hari Chandramgethen, head of foreign exchange trading at South Indian Bank.
"Expectations are for a sub-7 percent and sub-10.5 percent reading on the wholesale and retail inflation, respectively. Rupee will hold in 61.75 to 62.50 range broadly until the data," he added.
The partially convertible rupee closed at 62.07/08 per dollar compared with 62.30/31 on Tuesday.
Local shares rose on Wednesday to mark their first daily gain this year, snapping a five-session losing run, as exporters such as Tata Consultancy Services rose on earnings optimism while Coal India surged on plans for an interim dividend.
Traders will continue to monitor shares for cues on foreign fund flows.
Flows have been miniscule so far this year with net inflows standing at $33.63 million and $28.86 million in stocks and bonds respectively.
In the offshore non-deliverable forwards, the one-month contract was at 62.47 while the three-month was at 63.33.
(Editing by Gopakumar Warrier)
