Market News

By Jaspreet Kalra

MUMBAI (Reuters) - The Indian rupee ended weaker on Tuesday, in line with regional peers that fell tracking the Chinese yuan, but potential portfolio inflows into local shares helped the currency avoid further losses.

The rupee closed at 85.1875 against the U.S. dollar, compared with its close of 85.1275 in the previous session.

Asian currencies were down between 0.1% and 0.3%, with the Chinese yuan declining to a weekly low as traders remained wary about the economic risks from an escalating trade war between the world's two biggest economies.

Dollar sales from foreign banks, likely on behalf of custodial clients, and two local private banks supported the rupee, a trader at a state-run bank said.

India's benchmark equity indexes, the BSE Sensex and Nifty 50, rose for the sixth session in a row, diverging from most regional indexes.

The dollar index stayed pinned near a three-year low as U.S. President Donald Trump's repeated criticism of the Federal Reserve chairman further dented investor sentiment towards the U.S. economy.

"The reaction to Trump's comments on the Fed indicates how sensitive markets are to the topic of Fed independence, and we believe this adds a new layer of bearish bias on the dollar," ING Bank said in a note.

ING expects volatility in currency markets to stay elevated as markets digest the host of policy changes under the Trump administration. The rupee's 1-month realised volatility has risen to an over two-year peak of 4.8%.

With few data releases in India and the U.S. this week, focus will stay on trade policy-related developments and remarks from Fed policymakers, three of whom are scheduled to speak later in the day.

(Reporting by Jaspreet Kalra; Editing by Mrigank Dhaniwala)