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Rupee edges higher on improving risk sentiment

A man counts Indian currency notes inside a shop in Mumbai

By Anushka Trivedi

MUMBAI (Reuters) - The Indian rupee firmed slightly against the U.S. currency on Thursday, as the dollar index cooled and Asian shares advanced.

The rupee finished at 82.7175 per dollar, compared with its close of 82.8025 in the previous session.

Volumes remained muted, but there is some positive risk bias, leading to the rupee gaining ground, said a private bank trader.

Its near-term support remains at 82.90 and resistance around 82.30, the banker added.

Outlook on the currency brightened a little after data on Wednesday showed India's trade deficit in January shrank to a one-year low, prompting economists to lower their estimates for the country's current account gap for this fiscal year and the next.

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Research analysts at Citi recommended going long on the rupee against some Asian peers, expecting the currency to outperform, citing favourable seasonality and optimism over the trade deficit.

"We expect marginal appreciation in the rupee, it could go to 82.20 soon," said Gaurang Somaiya, forex and bullion analyst at Motilal Oswal Financial Services.

However, low forward premiums are not good enough for exporters to sell their dollars, Somaiya said, adding that the firm recommends investors wait for spot rupee to touch the 83-level.

USD/INR 1-year forward premium implied yield edged up to 2.08% on Thursday but was still down nearly 30 bps so far this month.

The dollar index retreated in Asia after hitting a more than one-month high overnight following robust U.S. retail sales data.

This data comes on the heels of higher-than-expected inflation and strong jobs data that could prompt the Federal Reserve to hike rates multiple times.

However, Asian shares advanced broadly as they cheered the strength in the world's top economy, with stocks rallying up to 2%, while Indian equities rose.

(Reporting by Anushka Trivedi; Editing by Dhanya Ann Thoppil)