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INDIA RUPEE-Rupee seen higher as Treasury yields tumble on weak U.S. data

MUMBAI, Oct 4 (Reuters) - The Indian rupee is tipped to open higher against the dollar on Tuesday after Treasury yields plunged following data that showed a further slowdown in U.S. manufacturing activity.

The rupee is expected at around 81.55-81.60 per U.S. dollar in early trading, up from 81.8725 in the previous session.

The local unit on Monday yet again had threatened to slip below the 82 level, likely prompting the Reserve Bank of India to step in. It was the third instance in the last four sessions that rupee has dropped to near 82. The record low on rupee is 81.95, reached last Wednesday.

The 10-year Treasury yield on Monday fell to as low as 3.56% and the 2-year yield to 4.03%. The reversal in UK tax cut plan and disappointing U.S. manufacturing prompted investors to rush into Treasuries.

British Prime Minister Liz Truss was forced to abandon a tax cut plan and the U.S. Institute for Supply Management’s (ISM) survey showed manufacturing activity in September was the slowest in nearly two and a half years.

The dollar index dropped on Monday while U.S. equities jumped. The ISM’s survey measure of inflation at the factory gate decelerated for sixth consecutive month, adding heft to risk appetite The U.S. manufacturing data comes as traders assess how much more the Federal Reserve will raise rates to tackle inflation. For now, Fed officials are more focussed on bringing down inflation, even if comes at the cost of a slowdown.

The rupee in early trading will be helped by the trade deficit data released after market hours on Monday. India posted a trade deficit of $26.7 billion in September, according to preliminary data. That is down from $28.7 billion in the previous month.

Asian shares followed their U.S. peers higher. Most Asian currencies were range bound, oil prices inched higher.

KEY INDICATORS: ** One-month non-deliverable rupee forward at 81.78; onshore one-month forward premium at 24 paise ** USD/INR NSE Oct. futures closed on Monday at 82.0075 ** USD/INR forward premium as of Oct. 3 for end current month is 18.8 paise ** Dollar index at 111.66 ** Brent crude futures up 0.5% at $89.3 per barrel ** Ten-year U.S. note yield at 3.64%, India 10-yr bond yield at 7.5% ** SGX Nifty nearest-month futures up 1.5% at 17,115 ** As per NSDL data, foreign investors sold a net $186.7 mln worth of Indian shares on Sept. 30

** NSDL data shows foreign investors sold a net $310.3 mln worth of Indian bonds on Sept. 30 (Reporting by Nimesh Vora; Editing by Dhanya Ann Thoppil)

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