Dec. 11 (Bloomberg) -- India's rupee rose on speculation overseas investors will increase their purchases of local stocks to benefit from the nation's record economic growth.

The currency rose to the strongest in three weeks ahead of tomorrow's government report that may show industrial production accelerated, according to a Bloomberg News survey. The rupee is headed for its biggest annual gain since at least 1974 and is the second-best performer in the past 12 months among the 10 most-traded currencies in Asia outside Japan.

``The fundamentals of the economy are strong and are giving confidence to global investors,'' said Sanjay Arya, treasurer at state-owned Bank of Maharashtra Ltd. in Mumbai. ``The bias will remain for the rupee to keep rising.''

The local currency gained 0.2 percent to 39.345 against the U.S. dollar as of the 5 p.m. local time close in Mumbai, according to data compiled by Bloomberg. It may strengthen as high as 39.20 in the next few days, Arya said.

Production at factories, utilities and mines may have increased 10 percent in October from a year earlier, compared with September's 6.4 percent gain, according to the median forecast of 18 economists surveyed by Bloomberg. Demand for cars, mobile phones and manufactured products has climbed as salaries in Asia's third-biggest economy have risen.

The rupee's gains were moderated by speculation the central bank sold the currency to stem a rally that eroded export earnings. It has risen 12.5 percent versus the dollar this year.

Exporters Seek Relief

``There is an urgent need for the government to take measures to bring relief for exporters and help them not lose their markets,'' said Ganesh Kumar Gupta, president of the Federation of Indian Export Organizations in New Delhi. ``The government should intervene to arrest the appreciation of the rupee and help contain its impact.''

A stronger currency makes Indian goods and services more expensive to customers abroad.

The government is considering refund of some duties as a relief measure, Trade Minister Kamal Nath told reporters in New Delhi today. The cabinet will review norms for overseas investment in India next week, Nath said.

Last month, India cut customs duty on manmade fibers and eased credit terms for leather and textile exporters as the rupee rose to the highest in almost a decade. The government in October announced subsidized loans and tax breaks to exporters for the second time this year to help industries such as jute, cashew nuts and coffee.

The rupee also rose on speculation investors will buy more emerging-market assets after an interest-rate cut by the U.S. Federal Reserve today.

The Fed may lower interest rates a third time this year, to 4.25 percent, according to the median forecast of a Bloomberg News survey of 123 economists. The decision is expected at about 2:15 p.m. in Washington.

To contact the reporter on this story: Anoop Agrawal in Mumbai at Aagrawal8@bloomberg.net.

Last Updated: December 11, 2007 07:25 EST