Indian rupee up on inflow hopes, RBI hand seen

MUMBAI (Reuters) - The Indian rupee strengthened on Friday on expectations of capital inflows after the U.S. Federal Reserve's rate cuts, but traders said the gains were checked by suspected intervention by the Reserve Bank of India.

The partially convertible rupee ended at 39.35/36 per dollar, slightly weaker than the day's high of 39.33, its highest since Jan. 21, according to Reuters data.

The rupee ended at 39.38/39 on Thursday and hit a near-decade high of 39.16 percent in November.

Trading volumes for the day were low at $861 million, data provided by Clearing Corporation of India showed.

"It's been a very dull day, not much trading," said Rohan Lasrado, head of trading at HSBC in Mumbai.

"We've seen capital outflows due to the Reliance (Power) IPO, but these have been offset by capital inflows thanks to the dollar losing ground," he added.

Foreign funds were net sellers of $841.6 billion on Thursday, taking total sales to about $4.8 billion in the last 12 sessions, after pouring $17.4 billion into Indian equities in 2007.

The main share index snapped a four-day fall and rebounded more than 3 percent on Friday.

Traders expect demand for local assets to gather momentum in the near term, as a result of the Fed's recent rate cuts.

The U.S. central bank cut rates by a hefty half percentage point on Wednesday, in an attempt to halt a sharp slowdown in the United States.

Flows of foreign capital into India have been a key driver of the rupee's rise.

The RBI limited its intervention in the currency market on Friday, permitting the rupee to gain slightly, dealers said.

India's central bank aims to check the rupee's rise to ensure Indian exports remain competitive.

"The central bank has not been intervening in the market to the level we anticipated, so we've seen a bit of appreciation," Lasrado added.