MUMBAI: The Indian rupee breached the 55-per-dollar mark on Thursday, hitting its strongest level against the dollar in more than two weeks, as a rate cut in China in late trade further boosted a revival in global risk sentiment.

Dollar sales by foreign and custodian banks tied to the rally in domestic stock markets also helped the rupee strengthen, although dollar buying by oil firms capped some of the gains. 

India's promise on Wednesday to push ahead with major transport and power projects, which some analysts initially saw as a positive signal from a government often accused of policy inaction, failed to sway markets.    

The rupee has now gained for four consecutive sessions, bouncing back from a record low of 56.52 hit a week ago, and analysts see further gains ahead if demand for global risk assets continues to improve.   

"I think the rupee should appreciate from here on. The rupee could rise to 54 in the near-term, while downside should not be beyond 56.50 levels. We have likely seen the bottom," said S. K. Kalra, general manager and head of treasury at Allahabad Bank.   

The partially convertible rupee closed at 54.94/95 per dollar, according to SBI data, after earlier hitting 54.92, its strongest since May 28. The rupee closed at 55.36/37 on Wednesday.   

Global risk sentiment improved in part on rising hopes for new monetary stimulus from the U.S. Federal Reserve, with traders also welcoming China's surprise move to cut benchmark interest rates in a bid to spur economic growth.    

The Reserve Bank of India is also widely expected to cut domestic interest rates at its policy meeting on June 18 after growth slowed sharply in the first three months of the year, which may help improve confidence in the economy.   

Although traders expect consolidation in the near-term, few are willing to bet on a sustained rebound of the rupee.   

Investors have shown little confidence in the government's ability to tackle the country's steep fiscal and economic challenges.

Its plan on Wednesday to kickstart road projects and build airports, for example, was greeted with widespread skepticism in FX markets.    

Foreign investors, whose flows are critical to India's markets and its economy, bought 1.7 billion rupees (USD30.48 million) of stocks on Wednesday, though they remain net sellers of about 20 billion rupees so far this month, indicating they have sold into the rally in Indian stocks.   

"As of now stock flows are expected to continue, but we need to see how far the euro zone goes in sorting out the crisis, which is not easy," said Hari Chandramgathan, a forex dealer with Federal Bank.   

"So rupee weakness will continue after the initial pause. If flows are good, the rupee can gain to 54.60 or 53.80 in the coming weeks."   

The one-month offshore non-deliverable forward contracts were at 55.26 while the three-month was 56.01.     

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 ended around 55.09 on a total volume of USD4.1 billion.

(Agencies)

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