By Swati Bhat
MUMBAI (Reuters) - The rupee posted on Wednesday its biggest single-day gain since mid-May and rose to its highest level in more than two weeks on the back of heavy dollar sales by custodian banks along with some corporate dollar inflows.
Aiding sentiment was a record run by Indian shares after Finance Minister Arun Jaitley's warning against "mindless populism" raised hopes the government would unveil a fiscally prudent budget next week.
Traders said the Reserve Bank of India (RBI) was spotted buying dollars sporadically after the unit crossed 59.70 levels, but strong inflows helped the rupee continue to gain nonetheless. The RBI has tended to intervene when the rupee strengthens above 60 to the dollar.
"Now that the psychological level of 60 has been breached and with a close of below 59.70, there could be potential further gains for the rupee. But RBI can step in to buy at any point," said Paresh Nayar, head of foreign exchange and fixed income trading at First Rand Bank.
"The budget is going to be the most keenly watched budget after many years. The forex market will be impacted based on the outlook for inflows in various sectors based on specific measures taken."
The partially convertible rupee closed at 59.6875/6975 per dollar compared with 60.07/08 on Tuesday. The unit rose to 59.62, its strongest since June 13, while the day's low was 60.07.
The movement in global crude, given the impact on inflation and the current account deficit, will be monitored. India imports nearly two-thirds of its oil needs.
Oil fell towards $111 a barrel on Wednesday, its lowest in almost three weeks, on a possible substantial recovery in Libyan exports after rebels said they would reopen two oil terminals.
In the offshore non-deliverable forwards, the one-month contract was at 59.90, while the three-month was at 60.48.
(Reporting by Swati Bhat)
