[TepSteade]

MUMBAI – The Indian rupee rose for a second straight session against the U.S. dollar Friday, aided by a sharp jump in local stocks and improved risk appetite due to optimism over a Greek debt-swap deal.

The dollar was quoted at 49.84 rupees late Friday, down from 50.28 rupees in late Asian trade Wednesday. Indian debt and currency markets were shut Thursday for a local holiday.

The Bombay Stock Exchange's Sensitive Index rose 2.1% to end at 17503.24.

"The euro fell after the [Greek debt-swap] results partly on some profit-taking, but the outlook is largely positive for riskier currencies including the rupee," said the trading head at a foreign bank.

However, many rupee watchers remain cautious, saying India's weak fundamentals may affect the local currency's rise in the medium term.

India's trade deficit widened for the second straight month in February--to $15.2 billion from $14.7 billion in January--as weakening global demand hurt export growth.

"The recent appreciation of the rupee has run its course. We do not expect the recent pace of capital flows to be sustained and we look for the dollar-rupee to stabilize in the near term," Kotak Mahindra Bank said in a report.

The rupee is up 6.5% so far this year against the dollar, after falling nearly 16% in 2011.

Sovereign bond prices fell as most market players believed the central bank is unlikely to cut its key lending rate at next week's rate-setting meeting.

The benchmark 8.79% 2021 bond ended at 103.32 rupees, compared with Wednesday's 103.59 rupees.

"The RBI governor's indication on reduction of mandatory government bond holding weighed on the market as it will reduce the demand for government bonds," a senior dealer with a state-run bank said.

The statutory liquidity ratio--the minimum bond-holding requirement of banks--needs to be brought down in India, RBI Governor Duvvuri Subbarao said Friday. Currently, the statutory liquidity ratio is 24%, and Mr. Subbarao says it is "considered by many people as high."

After the market closed, the central bank cut the cash reserve ratio, or the percentage of deposits that banks need to hold as cash with the central bank, to 4.75% from 5.50%, effective from March 10.