Indian rupee sees worst week in five as weak yuan erodes risk sentiment

By Anushka Trivedi

MUMBAI (Reuters) - The Indian rupee marked its worst week in five on Friday, as risk sentiment was hit by the Chinese yuan weakening past 7 per dollar to breach a key psychological level for the first time in two years.

The partially convertible rupee closed down 0.1% at 79.74 per dollar, recouping some of the day's losses when it had hit an over one-week low. For the week, the rupee declined 0.2%, its biggest loss since the week ended Aug 12.

A foreign exchange trader said market participants were wary that the rupee had not been allowed to weaken past 80 per dollar and saw it as a level to protect.

Traders were likely unwinding long dollar positions and creating fresh shorts, he added.

Asia's economic engine China saw its yuan fall to 7.0166 due to a buoyant dollar and a slowing domestic economy, which had a cascading effect on its regional peers due to their close trade relationship. [CNY/]

A slew of data from China came in mixed, as industrial output beat forecasts but property investment continued to decline considerably.

Several Asian currencies hit multi-year lows, while stocks sold off. Indian equities plummeted 2%.

Meanwhile, unexpectedly strong U.S. data overnight added to the case that the economy could tolerate higher interest rates, sparking a sell-off in Treasuries and making the greenback even more attractive to hold.

The dollar index rallied 0.4% to 110.13, not far from its two-decade high of 110.79 reached earlier this month.

Traders now shift their focus to a slew of monetary policy meetings by the Federal Reserve, the Bank of Japan, and the Bank of England next week, with the Fed meeting taking centre stage.

(Reporting by Anushka Trivedi in Mumbai; Editing by Neha Arora)