March 2 (Bloomberg) -- India’s rupee dropped to a record low as mounting global stock losses added to concern investors will pull money out of riskier emerging-market assets.

The currency extended a two-week slump on speculation Standard & Poor’s will soon cut the nation’s debt rating to junk. The rupee also fell on concern the current-account deficit will widen after a government report today showed exports slumped the most in a decade. The MSCI Asia Pacific Index dropped 3.3 percent, following an 11 percent drop last month in the U.S. Standard & Poor’s 500 Index.

“There’s a lot of pressure on the rupee as portfolio investments are falling amid the worsening global equity prospects,” said Sanjay Arya, Mumbai-based treasurer at state- owned Bank of Maharashtra. “A rating downgrade by S&P is feared. In addition, the outlook for exports looks quite bleak.”

The rupee slid 1.5 percent to 51.9425 per dollar at the 5 p.m. close in Mumbai, according to data compiled by Bloomberg. It touched an all-time low of 51.9450 earlier.

Offshore contracts indicate traders bet the rupee will trade at 52.39 to the dollar in a month, compared with expectations for a rate of 51.44 on Feb. 27. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than the local currency.

Dumping Equities

Funds based abroad sold $1.65 billion more Indian equities than they bought this year, adding to 2008’s record $13.3 billion in net sales, according to data released by the Securities and Exchange Board of India. The Bombay Stock Exchange’s Sensitive Index has dropped 11 percent this year, following a record 52 percent slide in 2008.

S&P last week lowered its outlook on India’s credit rating to negative from stable, saying government spending plans to shield the economy from the global recession and win voter support in elections were “not sustainable.” The company rates India’s debt BBB-, the lowest investment grade.

Asia’s third-biggest economy expanded 5.3 percent last quarter from a year earlier, the slowest pace in five years, a government report showed on Feb. 27.

Barclays Plc lowered its forecast for the rupee, saying slowing economic growth and a balance of payments deficit will weaken the currency by more than 7 percent by June.

The rupee, the second-worst performer in the past one month among the 10 most-active currencies in Asia outside Japan, will tumble to 56 per dollar by June, according to Barclays. Capital outflows and a widening shortfall in the current account will prompt foreign funds to shun the nation’s assets, Sailesh Jha, an economist at the U.K.’s second-largest bank, wrote in a research report today. Barclays had earlier estimated the rupee to drop to 52.

Slump to Deepen

Asia’s third-biggest economy may expand 4 percent in the fiscal year starting April 1, the slowest pace in seven years, Barclays forecast.

“We believe the growth momentum quarter-on-quarter will slow further,” Jha said in an interview. “ The pace of export growth is moderating much faster than the slowdown in imports. The downward adjustment in the rupee isn’t reflected yet, and there’ll be a lagged impact of global growth on the rupee.”

The median estimate of 25 strategists surveyed by Bloomberg News is for the rupee to strengthen to 49.63 by the end of June.

The deficit in the current account, a broad measure of trade and investment flows, widened to an all-time high of $12.54 billion in the quarter ended Sept. 30, from $9.8 billion in the previous quarter, according to central bank data. The gap may widen to 3.5 percent of GDP in the year to March, Jha said.

To contact the reporters on this story: Anil Varma in Mumbai at avarma3@bloomberg.net.

Last Updated: March 2, 2009 06:56 EST