INDIA RUPEE Rupee inches up as U.S. yields drop, weak Asian cues cap gains

An attendant at a fuel station arranges Indian rupee notes in Kolkata, India, August 16, 2018. REUTERS/Rupak De Chowdhuri

MUMBAI, Dec 8 (Reuters) - The Indian rupee firmed against the dollar on Thursday, a day after the Reserve Bank of India hiked interest rates, amid a fall in U.S. yields and subdued oil prices.

The rupee was at 82.31 per dollar by 10:35 a.m. IST, against its previous close of 82.47.

It snapped a three-day losing streak on Wednesday after the country's central bank raised the key repo rate by 35 basis points and sounded more hawkish than expected to fight inflation.

A drop in U.S. yields and oil prices was helping the currency, but the mood was tempered on concerns over higher interest rates sparking a recession in the United States and other developed economies.

Asian currencies traded between marginally weak to higher, while equities mostly declined. The Chinese yuan fell even as COVID rules were relaxed in the country.

"Markets are worried about a recession, but at the same time further hikes by the Federal Reserve are not ruled out," said Ritesh Agarwal, head of treasury at CTBC Bank.

"I don't think the rupee will run away to 83/USD anytime soon, unless the Fed surprises next week. Its near-term range is expected to be 82.10-82.70," Agarwal added.

The dollar index attempted to rebound from a slide overnight, its first decline since last Friday.

While investors have been anticipating the U.S. central bank to soon ease its tightening pace, recent upbeat data has added to the uncertainty over policy outlook.

Money markets see a 91% probability of Fed raising rates by 50 bps next week, and peaking at just under 5% in May.

Meanwhile, the rupee's recent decline that saw it weaken from 81.30-levels to 82.50 on dollar outflows is seen coming to an end by traders.

"Price action suggests that short-covering led rally (in USD/INR) seems to have concluded. If that is the case, then USD/INR can attempt a convergence with its peers and head south," said Anindya Banerjee, head of research for forex and interest rates at Kotak Securities.

Reporting by Anushka Trivedi in Mumbai; Editing by Dhanya Ann Thoppil

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