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By Anurag Joshi
MUMBAI (Reuters) - The rupee rose from one-week lows on Wednesday as local shares erased early losses, but was capped by dollar strength ahead of the outcome of the U.S. Federal Reserve's policy-setting meeting later in the day.
The partially convertible rupee ended at 46.655/665 per dollar, recovering from a trough of 46.80, its lowest since Dec. 9, to end stronger than Tuesday's close of 46.71/72.
The benchmark BSE index ended up 0.2 percent, after falling as much as 0.6 percent in early deals.
"Stocks recovery helped the rupee. The trigger for tomorrow will be Fed's decision," said a senior trader with a foreign bank.
Foreigners have bought $16.5 billion of Indian equities so far this year, data from Nomura showed, helping drive a 75 percent rally in the main stock index.
Analysts do not expect the U.S. Fed to change policy at its meeting, but will be looking for any change in its outlook. The Fed cut benchmark rates close to zero a year ago to combat a deepening recession.
"Traders will see whether the Fed is talking in a hawkish language. That would impact the dollar overseas and in turn the rupee and forward premiums," said Paresh Nayar, head (FX and money markets) of First Rand Bank in Mumbai.
The dollar was near a 2-½ month high versus the euro ahead of Fed's statement.
One-month offshore non-deliverable forward contracts were quoted at 46.69/79, weaker from the onshore spot rate.
In currency futures, the most traded near-month contracts on the National Stock Exchange and MCX-SX were at 46.72, stronger than Monday's 46.75.
(Editing by John Mair)
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