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Rupee falls to near 2-month low on dollar strength, falling yuan

Illustration photo of an India Rupee note

By Sethuraman N R

MUMBAI (Reuters) - The Indian rupee fell against the dollar to its lowest level in nearly two months on Thursday, tracking a slump in the Chinese yuan, while hopes of an imminent U.S. debt ceiling deal pushed up treasury yields and the greenback.

The rupee closed down 0.26% at 82.60 against the U.S. dollar, compared to its previous close of 82.38. It touched 82.65 earlier in the day, the lowest since March 21. The rupee lost 0.27% on the day, its worst single-day fall since May 9.

The offshore yuan depreciated further on Thursday to 7.0408 against the dollar as weak economic data released earlier this week continued to weigh.

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"The dollar index is looking positive amid progress on the debt ceiling talks," said Jigar Trivedi, senior analyst at Reliance Securities.

"USD/INR looks to appreciate further ... expect the pair to reach 82.70 in the coming sessions," Trivedi added.

The rupee has traded in the range of 82.1575-82.65 so far this week and is on track for a second straight week of losses.

The Reserve Bank of India likely sold dollars via public sector banks after the rupee weakened past 82.50, three traders told Reuters.

Meanwhile, U.S. Treasury yields rose overnight and the dollar index jumped to a more than seven-week high in the wake of positive signs on the debt ceiling negotiations and upbeat housing data.

The dollar index has risen roughly 2% since the middle of April to around 103.

Markets are keenly awaiting the weekly initial U.S. jobless claims report, which could likely stop the dollar's momentum, ING analysts wrote in a note.

On the other hand, USD/INR near forward premiums plunged, tracking a fall in overnight cash swap rate, while 2-month and 3-month premiums fell to the lowest since Aug 2011.

(Reporting by Nallur Sethuraman in Mumbai; Editing by Dhanya Ann Thoppil)