The Rupee / Sensex / Gold begin the weeks trading.

India's rupee may fall for a second week on concern overseas funds will sell emerging-market assets as a global rout in corporate debt and equities drives investors to safer securities such as U.S. Treasuries.

The country's benchmark Bombay Stock Exchange Sensitive Index, or Sensex, slumped the most in four months on July 27, causing the rupee to fall from near a nine-year high. The currency may extend its biggest weekly decline in almost two months, a survey of traders showed.

``A sense of nervousness has set in globally, and should this slump across the world continue, we can see the rupee decline even more,'' said Rohan Lasrado, a currency trader at HDFC Bank Ltd. in Mumbai. ``This depends on how much weakness we're going to see in the stock market.''

The rupee, which fell 0.5 percent to 40.53 last week, may decline to 40.65 this week, according to the median estimate of 10 traders surveyed by Bloomberg News.

The currency rose as high as 40.215 on July 24, the strongest since May 1998, making it the best performer after the Thai baht this year of the 10 most traded Asian currencies.

Asia's fourth-biggest economy expanded 9.4 percent in the year ended March 31, the fastest pace in almost two decades, luring funds from overseas as companies reported higher earnings. Maruti Udyog Ltd., which makes half of the cars sold in India, reported record profit in the three months ended June 30, beating analyst estimates.

Stock Purchases

Portfolio investors overseas tripled their average daily stock purchases this month to $250.5 million, according to the Securities and Exchange Board of India, helping the Sensex rise to a record last week.

Any decline in the rupee may be tempered by speculation central bank policymakers, who meet tomorrow to review interest rates, will announce measures to mop up excess rupees from the banking system.

The daily rate at which banks lend to each other averaged less than 1.5 percent since June 1, compared with 7.2 percent in the previous two months, Bloomberg data show.

Surplus cash in the banking system, a result of the central bank's purchases of dollars to stem gains in the rupee, may undermine the monetary authority's efforts to rein in inflation that accelerated to six-week high, said L.V. Prasad, chief currency trader at IndusInd Bank Ltd. in Mumbai.

Pressure to Appreciate

``Traders aren't sure what the central bank will do with all the liquidity in the system,'' Prasad said. ``If they do something about it, then there'll be some pressure on the rupee to appreciate.''

A higher call money rate may prompt banks holding dollars to sell the U.S. currency to raise rupees as loans to other lenders to get better returns. The overnight rate rose as high as 73.5 percent on March 30, helping push the rupee to the strongest in nine years.

The rupee may still decline on speculation the central bank will continue selling the currency to protect exporters after companies including Wipro Ltd., the country's third-biggest software exporter said the Reserve Bank of India hasn't managed volatility well.

``If the central bank stays away, there's still scope for the currency to reach new highs,'' said V. Rajagopal, chief currency trader at Kotak Mahindra Bank Ltd. in Mumbai. ``They've been slowing gains.''

Additions to the nation's foreign-currency reserves, a gauge of dollar purchases by the central bank, rose $8.7 billion in the three weeks to July 20, compared with $5.1 billion in June, according to the Reserve Bank.

Rupee / US Dollar Forex Currency News, Gold in India, and The Sensex index on the Bombay Stock Exchange (BSE).

Gold fell back from an overnight rally in Asia during in the first-half of London trade on Friday, giving back $3.50 per ounce to record an AM Fix of $663.50.

"Yesterday's fall in the gold market was a pure reaction to the equities market," reckons Ng Cheng Thye, head of precious metals at Standard Bank Asia.

"This morning we saw a lot of bargain hunting."

Bargain hunting was also seen in the key Indian gold market, where gold futures rose as the Indian Rupee fell against the Dollar. But the rally petered out as London opened and the Euro sank along with the British Pound to a new two-week low.

Trading at barely $2.0300, the Pound capped the retreat in the Sterling Price of Gold at £325.94 per ounce by the Morning Fix in London. The Euro dropped as low as $1.3640 against the US Dollar – in which gold is priced internationally.

That put the price of gold for French and German investors wanting to buy gold today up at €487 per ounce – more than 1.3% above Thursday's two-week low.

"Gold is consolidating ahead of the US market open," said Michael Jansen, an analyst at J.P.Morgan to AFX News. "We'll be looking to Wall Street to provide broad direction today."

European stock markets rose a little in morning trade, recovering 0.1% after yesterday's 3% drop – the worst day for the FTSE100 in London since 12 March 2003, the very bottom of the Tech Stock collapse.

The Dow in New York lost more than 400 points at one stage. US Treasury bonds are now heading for their best weekly performance since Sept. last year in what fixed-income analysts agree is a "flight to quality"

"The world economy will slow down this year," said Hiroki Shimazu at Mizuho Securities in Tokyo overnight. "I'm bullish on US Treasuries." The yield on 10-year US bonds has now been pushed down to 4.77% by rising prices. Last month it touched a peak above 5.30%.

The current market turbulence threatens "a triple whammy for the economy" says Bloomberg, robbing investors of spending power, making business investment more expensive and potentially prolonging the US housing recession.

Interest-rate futures are now unanimous in predicting that the US Federal Reserve will follow its 12 months of inaction by cutting the cost of borrowing Dollars by the end of this year. Only two days ago, the market put the chance of a Dec. cut at just 44%.

Eurozone interest rates now have a less-than-even chance of continuing to rise, according to prices in the European futures market. This week's flight to sovereign government bonds, which has pushed up prices and forced down yields, also means it will be "getting difficult for the Bank of Japan to push through an August rate hike in this environment, meaning government bonds have more room to go up," says Shinji Kunibe, a fund manager in Tokyo for J.P.Morgan.

"When people want to buy gold as an investment, that's because they see raging growth and inflation," reckons David Hightower of the eponymous Chicago research company. Citing Thursday's weak US housing data, "it's hard to think of inflation when you have a threat against the economy," he explains.

But history in fact points to lower interest rates, often caused by a weakened economic outlook, as a key driver of bull markets in gold. Indeed, the current pullback in Spot Gold Prices could prove a significant opportunity given that the fixed-income market is now betting on lower Dollar interest rates ahead, even as the stock market falls despite expectations of cheaper money to come.

Euro / Rupee and Yen / Rupee.
State Bank of India, the nation's biggest lender, said fiscal-first-quarter profit surged a more- than-expected 78 percent as companies took more loans to add capacity and build factories in a growing economy.

Net income climbed to 14.3 billion rupees ($352 million) in the three months ended June 30, from 7.99 billion rupees a year earlier, the bank said today in a statement to the Bombay Stock Exchange. Profit beat the 10.8 billion rupee median estimate of five analysts surveyed by Bloomberg. Revenue rose to 122.3 billion rupees from 95.7 billion.

Banks in India are benefiting as companies and individuals borrow to spend more in the world's fastest growing major economy after China. India's industrial production rose 11.3 percent in the year to March from 8.2 percent a year earlier.

The banking industry is likely to grow as much as 25 percent over the next few years, fueled by economic growth, said Navneet Munot, who helps manage $5 billion at Birla Sun Life Asset Management in Mumbai. Profit margins at banks will improve as deposit rates decline, he said.

Non-interest income at State Bank of India rose to 8.43 billion rupees from 7.1 billion rupees.

India's $854 billion economy is expected to grow about 9 percent in the year ending March, following from an average 8.6 percent growth in the past four years. Salaries in India may rise an average 15 percent this year, according to Hewitt Associates Inc. a human resource company. Wages rose about 14 percent in 2006, the fastest in Asia-Pacific.

Fee Income

State Bank of India's $156 billion of assets compare with $1.88 trillion for Citigroup Inc., the world's biggest, and $962 billion held by Industrial & Commercial Bank of China, which has more assets than all the banks in India.

Net interest income, or the interest earned on loans minus that paid for funds, rose 15 percent to 45 billion rupees from 39.1 billion, the bank said in the statement.

Fee income during the quarter grew 16.3 percent to 8.86 billion rupees.

``We expect fee income growth to continue to remain strong and treasury profits to also increase from the lower base in same period of the previous year,'' Manish Karwa, an analyst with Motilal Oswal Securities Ltd., said in a note to clients before the announcement.

State Bank, which accounted for 18 percent of lending by all banks, said advances rose 29 percent in the quarter to 3.44 trillion rupees, while deposits rose 19 percent to 4.5 trillion rupees. Individuals made up 26 percent of all loans.

Higher Provisions

Bad-loan provisions of 5.1 billion rupees were made for the quarter, compared with 1.74 billion rupees a year earlier, the bank said. Bad loans formed 3.13 percent of its total loans, compared with 3.64 percent a year earlier.

Net interest margin, or the difference between what the bank paid for deposits and earned from them, shrank to 3.31 percent from 3.37 percent as deposit costs rose, the bank said.

State Bank of India, which mobilizes 41 percent of its deposits from low-cost current and saving accounts, operates 9,500 branches across India, where 70 percent of the 1.1 billion population live in 638,000 villages.

Fundraising

Shares, which gained 20 percent since Jan. 1, fell 3.3 percent to 1,500.05 rupees yesterday on the Bombay Stock Exchange. The 18-member Bankex index rose 12 percent in the same period, while the 30-stock key Sensex index gained 10.5 percent.

The bank plans to raise as much as $1.5 billion selling shares this year, Chairman Om Prakash Bhatt said in May. Banks in India including ICICI Bank Ltd., HDFC Bank and UTI Bank may raise up to $10 billion in the year to March to meet growing credit demand and to bolster capital adequacy.

ICICI Bank posted a 25 percent rise in profit in the first quarter to 7.75 billion rupees, while Canara Bank, the second- biggest state-run bank, posted 26 percent higher profit at 2.41 billion rupees.

State Bank of India started in June 1806 as Bank of Calcutta, and merged with Bank of Bombay and Bank of Madras to form Imperial Bank of India in 1921. The Mumbai-based bank was partly owned by the central bank, until the transfer of its 59.73 percent stake to the government last month.