REUTERS, MUMBAI - The rupee surrendered early gains on Tuesday, hitting fresh one-year lows as it extended the previous session's sharp fall as banks and companies bought dollars on concerns about a domestic slowdown.

At 9:36 am, the partially convertible rupee was at 42.14/42.15 per dollar, its lowest since mid-April 2007 and a 0.2 percent weaker than Monday's close of of 42.05/06.

"Though (the dollar) opened lower, corporates were quick to buy the dollar at lower levels, and with a lack of dollar supplies the rupee has resumed its fall," said Rohan Lasrado, a trader at HDFC Bank who expects the rupee to fall to 42.50 by next week.  

The rupee has fallen 3.6 percent against the dollar since May 2. It is down 6.5 percent in 2008, a loss second only to the South Korean won among Asian currencies, after rising more than 12 percent in 2007.

Industrial output grew 3.0 percent in March from a year earlier, its weakest growth in six years as high interest rates squeezed demand for consumer goods, data showed on Monday.

The data has raised concerns of an economic slowdown from sizzling growth rates of above 8 and 9 percent in recent years. Singapore's DBS Bank said it was cutting its Indian growth forecast for 2008/09 to 8.6 percent from 9 percent earlier.

The risk of a slowdown has raised concerns that foreigners may not be very keen to invest in Indian stocks, weakening a key support for the rupee.

The stock market has fallen almost 17 percent in 2008. Foreign funds have been net sellers of about $3 billion of stocks this year, a sharp turnaround from record buying of $17.4 billion in 2007.

As global oil prices have surged to record highs, oil refiners, the biggest buyers of dollars in the interbank market, have stepped up their purchases, raising concerns the trade deficit may deteriorate and further pressuring the rupee.

One-month offshore non-deliverable forwards were quoting at 42.24/42.34 per dollar, weaker than the onshore rate, and the six-month forward dollar premium was quoting at 0.3600/0.3750, above 0.3275/0.3450 on Monday.

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