Mumbai, Feb 22: The Rupee today drifted lower by 12 paise to end at 40.04/06 against the US Dollar on brisk dollars demand by importers and some foreign banks at the local forex market. Dealers said,'' The rupee eased on concerns that overseas investors would withdraw funds from a falling stock market, though the prospect of further interest rate cuts by the US Federal Reserve offered some support''.
The partially convertible rupee opened lower at 39.95/96 per dollar, softening from the previous finish of 39.92/94. ''The equity markets are the key, because they are driving the flow of funds,'' said the chief dealer with a foreign bank. India's benchmark share index fell more than 1 per cent in early deals, with concerns about record oil prices and a US economic slowdown keeping investor sentiment cautious.
Foreign buying of local equities was a key driver of the rupee's 12.3 per cent rise in 2007.
Fresh evidence that the US economy was in recession sent Asian stocks lower, with Tokyo shedding almost 2 per cent as investors took shelter in the relative safety of government debt.
The dollar hovered near two-week lows against the euro on Friday after data showed the weakest regional factory activity since the last US recession in 2001 and boosted expectations for a large Federal Reserve interest rate cut.
The Federal Reserve said this week it had lowered its economic growth forecast. The Fed cut its lending rate by 1.25 per centage points in January in an effort to prevent a recession.
The Reserve Bank of India today fixed the reference rate for the US dollar at Rs 39.98 and the reference rate for Euro at Rs 59.20.
The reference rate was up by 9 paise as compared to its previous close, a RBI release said.
The exchange rates of Great Britain's Pound and Japanese Yen against the Rupee were given as Rs 78.5707 per pound and Rs 37.19 per 100 yen respectively.
Meanwhile, the six month premium of Dollar was quoted discounting at 0.02 (0.07) per cent and one year premium of dollar higher at 0.28 (0.08) per cent respectively.
The Indian unit ended low at 59.30/32 (58.69/71) against the Euro. Rupee closed also softer at 78.66/68 (78.02/04) per unit against the Pound Sterling. Similarly, it ended low at 37.36/38 (36.84/86) per hundred units against the Japanese Yen.