Rupee falls to 6 1/2 month low...recovers as exporters sell dollars

The Indian rupee weakened to its lowest in six-and-a-half months against the US dollar on May 21, slipping below the 47 mark for the first time this year, as stocks extended recent losses tied to the euro-zone debt crisis. The partially-convertible Indian currency fell as low as 47.3350, its weakest since Nov. 3, 2009. That tool this week’s losses for the rupee to more than 4%. It was last trading at 46.85 in late Friday trading as against the previous week's close of 45.20.

The rupee recovered on Friday helped by dollar selling by exporters. Indian shares pared their losses on Friday after having dropped over 2% as foreign funds continued to dump risky assets like emerging market securities amid growing concerns that lack of cohesion among euro-zone leaders will aggravate the debt crisis in the region. Data from the capital market regulator SEBI has shows that foreign institutional investors (FIIs) have pulled out US$1.3bn from the Indian stocks so far in May, reducing net inflows for the year to US$5.3bn.

Funds tracker EPFR Global said investor flows in the third week of May reflected the uncertainty and heightened risk aversion with equity funds posting net outflows of over US$12bn and bond funds enjoying inflows of US$212mn. European equity funds had their worst week since late April 2008, with investors pulling a net US$4.8bn, whilst US bond funds benefited from the flight to safety, the data provider said.