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India’s Rupee Drops to Three-Week Low on Global Growth Concern

India’s rupee fell to a three-week low as data showing Chinese economic growth is slowing spurred demand for the perceived safety of the dollar before European leaders begin a summit to tackle their debt crisis.

Asia’s largest economy expanded 7.4 percent in the third quarter from a year earlier, the smallest gain in more than three years, official figures showed today. Global funds cut holdings of Indian shares on Oct. 16 for the first time since Sept. 20, the latest regulator data show. Prime Minister Manmohan Singh’s government took steps last month to cut fuel subsidies and allow more foreign investment in some industries.

“We are seeing outflows, which is the main factor driving the rupee,” said Vikas Babu, a trader at Andhra Bank in Mumbai. “At times when global risk appetite is low, there is also increased concern about whether the government can go through with and implement its proposed reforms.”

The rupee declined 1 percent, the most since Oct. 8, to 53.4150 per dollar in Mumbai, according to data compiled by Bloomberg. One-month implied volatility, a measure of exchange-rate swings used to price options, fell nine basis points, or 0.09 percentage point, to 10.59 percent. The Dollar Index, which tracks the greenback against major trading partners, rose for the first time in three days.

European leaders start a two-day meeting in Brussels today, where Greek Prime Minister Antonis Samaras will argue for a two-year extension to meet the country’s bailout targets.

Three-month onshore rupee forwards were at 54.29 per dollar, compared with 53.80 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 54.08 versus 53.63. 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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