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Rupee Drops to 1-Week Low as Greece Deadlock Deters Risk Taking

India’s rupee fell to the lowest level in more than a week after a stall in Greek negotiations raised concern Europe’s debt crisis will slow global growth, sapping demand for emerging-market assets.

Overseas funds cut holdings of Indian bonds by $200 million in the two weeks through Feb. 7, exchange data show. Greek negotiations stumbled over pension cuts, threatening to scuttle a 130 billion-euro ($172 billion) rescue package. The rupee has advanced 7.2 percent this year after dropping 16 percent in 2011.

“A deal in Greece will be important for the rupee rally to continue,” said Roy Paul, deputy general manager of treasury at Federal Bank Ltd. in Mumbai. “Though some silver linings are emerging from Europe, we will have to wait and watch.”

The rupee declined 0.7 percent to 49.5050 per dollar in Mumbai, according to data compiled by Bloomberg. It touched 49.5287 earlier, the lowest level since Feb. 1.

The rupee also weakened as Commerce Secretary Rahul Khullar said in New Delhi India’s trade deficit widened to a three-month high of $14.7 billion in January.

Three-month onshore forwards traded at 50.53 a dollar, compared with 50.16 yesterday, while offshore non-deliverable rupee forwards were at 50.50 from 50.13. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

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