Mumbai: The rupee hit a nine-year high as the US Federal Reserve cut base interest rate by 50 basis points to 4.75 per cent, increasing appetite for emerging market assets.

The Reserve Bank intervened to cap rupee''s gains by heavy dollar-buying.

The rupee which rose to 40.18 - its highest since May 1998 - during intra-day trade, ended at 40.20/21 per dollar. The rupee gained more than half a per cent from yesterday''s close of 40.48/49, and has risen more than 10 per cent this year.
The currency hit its previous high of 40.20 was in July.

The cuts in US interest rates raised India''s interest rate premium over the US to 300 basis points, which traders said would attract more capital inflows and add to the rupee''s momentum.

The stock market also rose 4.2 per cent, recording its biggest gain in 15 months, on hopes that the US rate cut would see foreigners return to emerging markets.

An RBI spokeswoman said the central bank did not comment on the day-to-day movements on the exchange rate. However, data this month showed the central bank bought $11.4 billion in intervention in July, when the rupee was last near current levels, taking its dollar purchases in 2007 to 38.1 billion.

The Federal Reserve lowered its benchmark federal funds target rate by 50 basis points to 4.75 per cent to stem a housing slowdown and credit market turmoil. It also cut the discount rate for direct loans to banks by a half-point to 5.25 per cent.

also see : General reports on Economy