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India’s Rupee Gains to Strongest Close Since May on Reform Steps

India’s rupee closed at the strongest level since May on optimism efforts by policy makers to consolidate government finances and lure foreign investors will spur growth, boosting capital inflows.

Purchases by overseas funds in local shares yesterday and Sept. 14 totaled $951 million, data from the market regulator show, the biggest two-day purchase in almost nine months. Prime Minister Manmohan Singh raised diesel prices last week for the first time since July 2011. The administration also allowed foreigner retailers to own as much as 51 percent stake in retail stores and 49 percent in airlines, the biggest change to overseas ownership rules in eight years.

“These are steps in the right direction and may help lure capital inflows and underpin growth,” said Gaurav Kapur, a senior economist at Royal Bank of Scotland Group Plc in Mumbai. “The measures are well timed as they coincide with efforts by the developed world also to revive their economies.”

The rupee ended little changed at 53.9950 per dollar in Mumbai, the strongest close since May 15, according to data compiled by Bloomberg. The market is closed tomorrow for a public holiday.

Asia’s third-largest economy expanded 5.5 percent in the three months through June 30, near the 5.3 percent growth in the previous quarter that was the least since 2009.

Last week, the Federal Reserve unveiled additional measures to stimulate growth in the U.S. The Fed said Sept. 13 it will expand holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month and hold the federal funds rate near zero “at least through mid-2015” to create more jobs.

Offshore forwards indicate the rupee will trade at 54.71 to the dollar in three months, compared with expectations of 54.78 yesterday. 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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