May 25 (Bloomberg) -- India’s rupee fell for the first time in seven days on concern overseas investors will pull money out of Asia after North Korea said it held a nuclear test today.

The currency declined the most in almost two weeks as the MSCI Emerging Markets Index of stocks dropped, adding to speculation global funds see increased risk. A gauge that tracks the dollar against six major currencies rose for the first time in six days, indicating investors are opting for the relative safety of the greenback.

“The rupee is falling and it’s a reaction to the North Korean nuclear test,” said Sudarshan Bhatt, chief currency trader at state-owned Corporation Bank in Mumbai. “Banks are reversing dollar short positions to reduce risk. Stocks are expected to drop, and that could add to the rupee’s weakness.”

The rupee weakened 0.4 percent to 47.29 per dollar at the 5 p.m. close in Mumbai, according to data compiled by Bloomberg. The currency climbed 4.9 percent last week, the best performance since March 1996. A short position is a bet that an asset or currency will fall.

Offshore contracts indicate bets the rupee will trade at 47.46 to the dollar in a month, compared with expectations of 47.22 as on May 22. 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.

North Korea conducted a nuclear test today, the communist nation’s official Korean Central News Agency said. The underground test was “successful,” according to the report.

The ICE’s Dollar Index, which tracks the greenback against the euro, the yen, the British pound, the Canadian dollar, Swiss franc and Sweden’s krona, climbed 0.3 percent.

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

Last Updated: May 25, 2009 07:45 EDT