Rupee erases weekly gains as banking worries come to fore

By Anushka Trivedi

MUMBAI (Reuters) - The Indian rupee reversed course to fall on Friday, erasing its weekly gains, as risk sentiment worsened on worries over the health of the financial sector in the United States and Europe.

The rupee closed at 82.48 per dollar, as compared with Thursday's close of 82.2625.

The Indian currency was eyeing gains for the week earlier in the day before selling across global markets kicked off. It ended flat week-over-week.

European and UK equities opened lower, with banking shares leading the fall and the euro weakened as Deutsche Bank's credit default swaps jumped sharply. [.EU] [.L]

The moves highlight just how frail sentiment remains after the turmoil in the U.S. and European banking sectors in the past two weeks, reviving memories of the 2008 global financial crisis.

The dollar index jumped on safe-haven bids and the offshore Chinese yuan fell further to 6.88 against the U.S. currency to weigh on Asian peers.

USD/INR sustaining above 82.45 would negate our downward bias, said Anindya Banerjee, head of research - FX and interest rates at Kotak Securities.

It seems traders are not comfortable with their risk exposures into the weekend as the moves in global markets have shown we may not be out of the woods on these banking issues, said a trader at a Mumbai-based bank.

Investors sought the safety of the bonds, with U.S. 10-year yield falling 10 basis points (bps) to 3.30% and the two-year down over 20 bps at 3.5844%. [US/]

This added to moves sparked by expectations of a dovish Federal Reserve this week. The probability of a pause at the May meeting rose to 73%, with money markets expecting about 100 bps worth of rate cuts this year.

Markets now await the U.S. manufacturing and services PMI flash estimate for March due later in the day.

(Reporting by Anushka Trivedi; editing by Eileen Soreng)