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Indian rupee falls as yuan weakness weighs

A customer hands Indian currency notes to an attendant at a fuel station in Mumbai

MUMBAI (Reuters) - The Indian rupee was trading lower against the dollar on Thursday, tracking a Chinese yuan-led decline in Asian currencies.

The rupee was trading at 79.6575 per U.S. dollar by 0524 GMT, down from 79.4450 in the previous session. The local currency opened at 79.60.

The offshore Chinese yuan was down 0.3% at 6.8102 to the dollar, stirred by concerns over the country's economic outlook. China on Monday reported weak economic activity and spending data, prompting the country's central bank to cut key lending rates.

It was likely that there has been "a bit of" a speculative interest in buying the dollar on account of the yuan, a trader at a foreign bank said.

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"The usual daily cash and outright dollar demand is adding to rupee's weakness,"the trader said.

Other Asian currencies fell alongside the yuan while regional shares slipped. India's equity gauge, the BSE Sensex, inched lower, pulling back from an over four-month high.

The dollar index inched higher on Thursday, while Treasury yields declined. Traders have dialled back expectations of a 75 basis points rate hike at the Federal Reserve's meeting next month, after minutes of the previous policy meet indicated that the U.S. central bank could slow the pace of hikes in coming months with inflation concerns lingering.

Indian forward premiums were almost flat following the Fed minutes, with the 1-year implied yield hovering just above 3%. Open interest (OI) on August USD/INR futures dipped slightly, while 79.50 and 79.75 strike calls on the NSE that expire Friday saw a built up in OI.

(Reporting by Nimesh Vora)