Rupee drops, but broadly holds up to dollar's surge

By Sethuraman N R and Nimesh Vora

MUMBAI (Reuters) - The Indian rupee inched lower on Thursday on risk aversion fuelled by the U.S. debt ceiling worries, but fared better than its Asian peers and continued to hold above a key level.

The rupee was last at 82.7425 to the U.S. dollar, down less than 0.1% from the previous session.

In comparison, the Korean won and the Malaysian ringgit were down 0.6%, while the Indonesian rupiah and the offshore Chinese yuan slipped 0.4%. The dollar index rose to 104.06, the highest in over two months.

The rupee has managed to hold above the 82.85-82.95 level over the last three sessions, an important resistance level for the USD/INR pair, according to traders.

Anil Bhansali, head treasury at Finrex Treasury Advisors, reckons that exporters should look to sell dollars at close to these resistance levels and importers should either wait for a dip in USD/INR or keep a stop less near 83.

The dollar was helped by diminished risk appetite on uncertainty over the progress of the U.S. debt ceiling negotiations. Fitch put the United States' "AAA" debt ratings on negative watch on Wednesday in a precursor to a possible downgrade, should lawmakers fail to raise the ceiling.

Additionally, the dollar drew support from the increasing likelihood that the U.S. Federal Reserve may hike rates once again next month. The odds of a rate hike by the Fed in June rose to more than 1-in-3.

Minutes from the Fed's May meeting indicated that policymakers were divided over whether further hikes would be needed.

"The minutes to the May meeting show that there is a split," ING Bank said in a note.

"What happens next will come down to the data and events, such as inflation, jobs, the debt ceiling showdown and what is happening with the state of the banking sector."

(Reporting by Nimesh Vora; Editing by Sohini Goswami and Sonia Cheema)