* Rupee ends at 61.88/89 per dlr vs 61.62/63 on Monday
* RBI policy next likely trigger for INR
* HSBC says INR performance in 2014 has been 'tame'
By Subhadip Sircar
MUMBAI, Jan 21 (Reuters) - The Indian rupee fell to a near two-week low on Tuesday, giving up early gains, on sustained dollar demand from a large state-run bank, which dealers speculated was likely to meet the government's defence purchase needs.
The large bout of dollar requirement erased early gains in the currency, which had opened on a positive note as the non-deliverable forwards markets signalled gains for the rupee.
The rupee was largely rangebound for most of the trading day in the absence of any major cues ahead of the central bank's rate-setting meeting next week.
With the markets veering around to the view that the Reserve Bank of India will hold its firepower and prefer to wait for further data, rupee dealers will closely watch for equity market cues.
"The rupee was largely pulled down by defence-related dollar bids by a large state-run bank. I expect the currency to remain in a range in the run-up to the policy," said Navin Raghuvanshi, vice president at DCB Bank.
The currency has largely been stable in the new year, but has failed to show appreciation in spite of the pretty strong inflows in the debt markets totaling over $3 billion.
HSBC says that the rupee's rather tame show has been unwarranted given its high yielding status.
"But while they (INR and IDR) have not depreciated aggressively, the lack of a positive follow through so far this quarter is a concern, especially since some other EM current account deficit currencies are struggling," HSBC said in a note.
The partially convertible rupee closed at 61.88/89 per dollar compared with its Monday close of 61.62/63. It fell 0.4 percent, its biggest daily fall since Jan. 2.
In the offshore non-deliverable forwards, the one-month contract was at 62.17 while the three-month was at 62.98.
FACTORS TO WATCH * Euro falls versus dollar after German Zew * Philippine peso hits over 3-year low, Baht edges up * European shares hit 5-1/2 year high, dollar gains * Foreign institutional investor flows * For data on currency futures
DIARIES & DATA: Indian Data Watch European diary Indian diary US Diary (Editing by Gopakumar Warrier)