March 13 (Bloomberg) -- India's rupee fell as stocks slumped and crude oil at a record high added to speculation refiners will need to buy more dollars to pay for imports.

The rupee ended three days of gains as crude oil in New York touched $110.70 a barrel today. Asia's third-biggest economy, which meets three-quarters of its energy needs from abroad, needs to pay more as the commodity climbed almost 15 percent this year following a 57 percent rise in 2007. The currency also weakened on concern global funds will reduce their equity holdings after the benchmark index had its fifth worst day this year.

``The oil price increase is very sensitive and, given its importance, can spur dollar demand very quickly,'' said Puneet Sharma, chief currency trader at state-owned Allahabad Bank in Mumbai. ``That should keep the rupee under pressure now.''

The rupee weakened 0.2 percent to 40.425 per dollar at the 5 p.m. close in Mumbai, according to data compiled by Bloomberg. It may fall to 40.75 in the next week, Sharma said.

India's monthly oil imports climbed to a record $7.7 billion in January, the Commerce Ministry said March 3.

The rupee weakened as data from India's stock market regulator showed overseas funds sold more local shares than they bought this month. They dumped a net $429.5 million compared with net purchases of $429.8 million in February.

The benchmark Bombay Stock Exchange's Sensitive Index, or Sensex, fell 4.8 percent to the lowest since Aug. 31. The MSCI Asia Pacific Index of regional shares fell 2.4 percent.

Stock Purchases

Investments by global funds in Indian company shares reached a record $17.2 billion in 2007, helping the rupee complete its best year since at least 1974.

``Investors in Asia are looking for clear direction for the stock market,'' Allahabad Bank's Sharma said. A slump ``will deter the flow of investments into countries like India and the currency will suffer.''

The rupee pared losses on speculation some investors sold the U.S. currency following its slide to a record low against the euro today.

``The dollar's weakness is helping'' limit the rupee's losses, said Roy Paul, manager of treasury at Federal Bank Ltd. in the southern Indian city of Kochi.

The dollar also fell against the yen to the lowest since 1995 after Amsterdam-listed Carlyle Capital Corp. said its mortgage-bond fund defaulted on about $16.6 billion of debt as of yesterday.

The Reserve Bank of India's foreign-currency purchases in January reached a record $13.6 billion. The bank bought foreign currency for the 15th straight month, a monthly report on its Web site showed.

To contact the reporter on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net.

Last Updated: March 13, 2008 08:38 EDT