Jan. 11 (Bloomberg) -- India's rupee may weaken more than 4 percent from near a decade high by March as slowing economic growth in the U.S. and Europe hurts exports, according to Calyon.

The currency may decline to 41 against the dollar, the lowest since August, Sebastien Barbe, Hong Kong-based currency strategist at Calyon, said in an interview. Europe and the U.S. buy more than half of India's exports, which account for almost a quarter of the South Asian nation's gross domestic product. Goldman Sachs Group Inc. this week said the U.S. economy is probably slipping into recession.

``There will be short-term weakness in the rupee as Indian exports come under pressure,'' Barbe at Calyon, the investment- banking arm of Credit Agricole SA, France's second-biggest bank, said. ``We expect the U.S. economy to be weak in the first half.''

The rupee headed for the third weekly gain and traded at 39.29 against the dollar as of 9:50 a.m. in Mumbai, according to data compiled by Bloomberg. It posted the biggest gain last year since at least 1974 and touched 39.185 on Nov. 7, the strongest since February 1998.

Calyon has the most bearish outlook for the rupee in the first quarter among 24 analysts surveyed by Bloomberg News. The median estimate is for the rupee to strengthen to 38.84 by the end of March.

The French bank in late October had expected the currency to end 2007 at 42. India's rupee, which appreciated 12.3 percent to 39.415 in 2007, was the best performer in Asia after the Philippine peso, as global funds bought a record $17.2 billion more of local equities than they sold.

The benchmark stock index completed a sixth winning year before climbing to an all-time high yesterday.

Bullish Year-End

The capital inflows may continue and the Reserve Bank of India is likely to allow the currency to strengthen in the second half to temper inflation fueled by imported commodities including crude oil, Calyon's Barbe said.

BNP Paribas and Morgan Stanley join Calyon as the most bullish forecasters for the rupee by year-end in Bloomberg's survey. BNP predicts a rate of 34 and Calyon and Morgan Stanley 36, compared with the median estimate of 37.88.

Growth in India's merchandise exports slowed to 17.9 percent in the 11 months through November from 22.4 percent a year earlier, data provided by the Commerce Ministry show.

Strength in the rupee helped the government keep the freeze on domestic fuel prices by reducing import costs even as crude oil prices rose to a record $100.09 a barrel.

``Most global investors are looking at India as the next success story and it will be difficult to fight the market,'' Barbe said. ``Higher oil prices will have a much larger impact on imported inflation, so the central bank may let the rupee rise.''

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

Last Updated: January 10, 2008 23:47 EST