Rupee Strengthens on Inflow Optimism as Service Industry Grows

India’s rupee gained, erasing early losses, on optimism foreigners will boost purchases of the nation’s stocks after a private report showed service industries expanded at the fastest pace in a year in January.

The purchasing managers’ index rose to 57.5 from 55.6 in December, HSBC Holdings Plc and Markit Economics said in a statement today. A number above 50 indicates growth. Services account for about 57 percent of gross domestic product, Finance Ministry data shows. The currency also rebounded as European stocks rallied.

“In the first quarter, forces are nicely aligned for the rupee to strengthen,” said Hitendra Dave, Mumbai-based head of global markets, at HSBC Holdings Plc.

The rupee advanced 0.3 percent to 53.1350 per dollar in Mumbai, reversing a 0.2 percent drop, according to data compiled by Bloomberg. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell 20 basis points, or 0.20 percentage point, to 9.55 percent.

Spanish Prime Minister Mariano Rajoy is struggling to impose austerity and restore confidence amid calls for him to resign on corruption allegations, while Italian polls showed Silvio Berlusconi has closed the gap on his rival even as he appeals a four-year prison sentence for tax fraud. The European Central Bank meets on Feb. 7, while euro-area leaders gather for a summit the same day.

European stocks rebounded after their biggest plunge in more than three months, a slump triggered by renewed concerns Europe’s debt crisis will worsen.

Overseas investors have bought $4.6 billion more Indian shares than they sold this year, exchange data show.

Three-month onshore rupee forwards traded at 54.13 per dollar, compared with 54.22 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 53.97 versus 54.05. 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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