The Indian Rupee jumped over 1 per cent against the dollar to a two-month high in early trade on Friday after the government decided to hike diesel prices. Global and India stock markets also rallied Friday following Federal Reserve's decision to launch a third round of quantitative easing.
At 09.38 a.m., the rupee was trading at 54.72 level against the dollar, up 1.26 per cent or 70 paise from Thursday's close.
The dollar, meanwhile, has remained weak against the basket of global currencies.
The dollar traded up 0.1 percent at 77.57 yen, recovering from the seven-month low at 77.13 yen touched on Thursday. The euro held steady at $1.2987, just below a four-month high at $1.3002 reached on Thursday.
The dollar index measured against a basket of key currencies hovered near a four-month low of 79.18 hit on Thursday.
In early morning trade, the Sensex traded 327 points or 1.8 per cent higher at 18,348 while the Nifty advanced 101 points to 5,536. Meanwhile, asian shares too rose to a four-month high.
Overnight, US markets too staged a huge rally with the Dow Jones industrial average spiking more than 200 points, clearign the 13,500 level for the first time since the beginning of the Great Recession. The average is within 625 points of its all-time high.
The Fed said it would buy $40 billion of mortgage securities a month until the US economy improves. Fed's decision would lead to a rise in liquidity in the global economy giving a push to riskier assets like equities and commodities.
The government's decision to hike diesel prices also cheered markets. Investors have been concerned over the rising subsidy bill because state-run oil refiners have been selling fuel at below market prices. Shares in OMCs - BPCL, IOC and HPCL - traded with 2-3 per cent gains.
"This is more than what we can handle right now. Domestic cues have come last evening. I just hope the government sticks to the fuel price hike. The government may allow FDI in aviation today evening. That will keep the markets running up," market analyst Ambareesh Baliga said.
The government hopes the move will help avert a sovereign credit downgrade, the prime minister's chief economic advisor, C. Rangarajan, said. "The government has shown it can take hard decisions, very difficult decisions."
The cabinet's economic panel is due to meet on Friday to discuss a plan to invite foreign airlines to invest in domestic carriers and a proposal to sell shares of large state-run firms.
With inputs from PTI, Thomson Reuters 2012
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