July 1 (Bloomberg) -- India's rupee declined for a third day on concern that rising oil prices will increase demand for dollars and losses in the benchmark stock index will keep global funds away from local shares.

The currency dropped after completing the worst quarter in a decade as a central bank report yesterday showed the nation's current-account deficit widened to a record $17.4 billion in the year ended March 31. Crude oil, which almost doubled in the past 12 months, increases costs for Asia's third-biggest as the nation depends on imports to meet about 75 percent of its annual energy needs.

``The sentiment is negative for the rupee on all fronts,'' said L. V. Prasad, chief currency trader at IndusInd Bank Ltd. in Mumbai. ``Stocks have been down and the capital outflows combined with high oil prices have the potential to weaken the rupee further.''

The rupee fell 0.2 percent to 43.105 per dollar as of 9:41 a.m. in Mumbai, according to data compiled by Bloomberg.

The Bombay Stock Exchange Sensitive Index, or Sensex, has dropped almost 34 percent this year, with overseas investors selling $6.4 billion more Indian shares than they bought, according to data provided by the Securities and Exchange Board of India. They bought a net $17.2 billion of local equities, a record, last year.

Inflation, which accelerated at the fastest since February 1995, has also prompted global investors to dump Indian assets. Wholesale prices rose 11.42 percent in the second week of June from a year earlier.

To contact the reporters on this story: Sam Nagarajan in New Delhi at samnagarajan@bloomberg.net.

Last Updated: July 1, 2008 00:46 EDT