The Indian rupee rose on Friday against the US dollar, tracking a rally in domestic shares to record highs, but broader gains were capped as the central bank was spotted buying American currency intermittently through the session to cap gains.
Overseas investors bought Indian shares worth a net 13.69 billion rupees ($230.8 million) on Thursday, provisional exchange data showed, buying for a fifth straight day and bringing their total purchases to $8.3 billion so far this year.
But intervention from the Reserve Bank of India is keeping a lid on rupee gains, sending the currency down 0.1 percent for the week, its second consecutive weekly loss against the dollar.
"The rupee should be held by RBI in a tight range. Ideally it should have been much stronger than it is," said Ashtosh Raina, head of forex trading at HDFC Bank.
The partially convertible rupee closed higher at 59.17/18 per dollar versus 59.33/34 per dollar on Thursday.
The RBI's dollar purchases in the spot market and the corresponding paying in the forwards to offset the impact on liquidity have been pushing up the forward premiums.
The one-year premium closed at 501.25 points, after hitting 504.25 points during the session, not far from a near two-month high of 506.25 points hit on Tuesday.
The rupee benefited as India's main two indexes surged more than 1 percent to mark record highs on continued optimism about policy reforms by the new government.
In the offshore non-deliverable forwards, the one-month contract was at 59.30 while the three-month was at 59.86.
FACTORS TO WATCH
* Euro holds strong after ECB moves, U.S. data dominates
* Emerging Europe FX near post-ECB highs, U.S. jobs in focus
* Asia up, Europe more cautious as payrolls loom
* Rupee ends up at 59.17/18 versus 59.33/34 on Thursday
* RBI should hold INR in a tight range - trader
* FIIs continue to buy for a fifth straight session