MUMBAI, Feb 10: The rupee rose on Friday bolstered by the yen’s surge against the dollar and rising foreign capital inflows but traders said state-run banks acting on behalf of the central bank checked a sharp rally.

India’s central bank has absorbed most of the foreign inflows since the start of the week. Analysts say the rupee is overvalued by nearly 10 per cent on a trade-weighted basis and the central bank was keen to rein it in.

Dollar purchases by the central bank would release rupees into the banking system, easing some of the tightness in the money market, dealers said.

The rupee ended at 44.19/20 per dollar, up 0.15 per cent from Wednesday but it closed unchanged for the week. Banks in the financial capital, Mumbai, were shut on Thursday for a holiday.

The rupee touched its highest level in four months last week at 44.0425 but has since lost nearly 0.4 per cent on persistent central bank intervention.

They (the state-run banks) were there mopping up most of the dollar supplies from foreign funds and exporters, said a trader at a foreign bank. The central bank does not appear very keen that the rupee breaches the 44.20 mark.

Steady foreign fund inflows have helped cushion the rupee against firm prices of crude oil, India’s biggest import, and a key factor in a widening trade deficit.

Data showed foreign funds had bought Indian shares worth $174.5 million on Monday, taking the total to $1.2 billion in 2006.

India’s main stock index has rallied over 7 per cent in 2006 and climbed above a record 10,000 points this week, after the government forecast the economy to expand by 8.1 per cent in the fiscal year to March.

Traders said the yen’s rise against the euro was also helping the rupee.

The yen gained more than one per cent against the dollar and euro on Friday after a series of upbeat economic data boosted expectations the Bank of Japan will soon move away from its ultra-easy monetary policy.

But the dollar held steady against the euro ahead of key US trade data at 1330 GMT, forecast to show a widening in the deficit in December to $65.0 billion.—Reuters