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Rupee shrugs off dollar's strength thanks to key support

A customer hands Indian currency notes to an attendant at a fuel station in Mumbai

By Nimesh Vora and Sethuraman N R

MUMBAI (Reuters) - The Indian rupee on Wednesday was unmoved by the U.S. dollar's Chinese yuan-fuelled strength, helped by the possible dollar inflows and an important support level.

The rupee was at 82.64 against the U.S. dollar by 10:52 a.m. IST, compared to 82.71 on Tuesday. This is despite a further decline in the yuan, which pushed other Asian currencies lower and boosted the dollar against its major peers.

The rupee is also being supported by expectations of possible inflows into Indian equities later in the session when the MSCI Index will be rebalanced, said Dilip Parmar, research analyst at HDFC Securities.

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Index provider MSCI's rebalancing will come into effect at the close of markets and that generally leads to inflows into stocks.

Further, the rupee is enjoying a familiar technical support around the 82.80-82.85 level, which has held in the past, according to traders.

The offshore Chinese yuan was down 0.35% to 7.1156 to the dollar, hovering near its lowest in six months, after data showed that China's factory activity contracted more than expected in May on weakening demand.

The dollar index rose to 104.34, while U.S. yields dropped.

The focus is now on the U.S. House of Representatives for the debate on debt ceiling legislation and an expected vote on passage on Wednesday.

Reacting to the fall in U.S. treasury yields, the 1-year rupee forward premium edged up to 1.80%.

Investors also await India's GDP data due later in the day and the U.S. jobs data, due on Friday.

(Reporting by Sethuraman NR in Mumbai; Editing by Savio D'Souza)