Rupee at 2.5-year low, touches 51.34 per dollar

Mumbai - 19 Nov 2011: Therupeedropped to a two-and-half year low of 51.34 against the US dollar on Friday after the Bombay Stock ExchangeSensexclosed 90 points down at 16371 after pulling back from the day's low of 16165.

Both the rupee and sensex witnessed their worst weeks in this quarter. The key driver of the markets was risk aversion by foreign institutional investors over fears that the European crisis could worsen . In order to remain liquid should the crisis worsen, international investors have been pulling their money out of emerging markets and investing them in US treasuries . As a result of this all Asian currencies had one of their worst weeks in recent months.

"I don't expect any change in sentiment until 2012 asforeign investorstypically do not make any fresh investments in December" said a banker . Foreign investors usually have the calendar year as their accounting year and they book profits and take stock of their investments in December . Also most of the fund houses are inactive because of Christmas holidays

The BSE sensex has fallen by nearly 5% this week, while the rupee has dropped by 0.8%. Deals in the overseas non-deliverable forward market (traders which are settled in foreign currency , but bets areon the rupee)show that investors expect the rupee to weaken to beyond 52 in three months .

In the international markets the euro firmed up against the dollar upon rumours that theInternational Monetary Fund, with support from theEuropean Central Bank, would come to the aid of the troubled European economies.

There was also some short-covering by traders who were betting against the euro which dropped the common currency . The Japanese Yen and the Swiss Franc, which are seen as safe haven currencies, also gained ground .

source: TOI