The forward rupee slipped considerably under the shadow of US sanctions and lost ground by around 1.4 per cent as importers rushed to cover. In the securities market, the prices of securities fell across the board by 60 to 100 paise. The spot rupee remained virtually unchanged, thanks to the State Bank's massive dollar selling.

Foreign banks in both the markets turned bearish as they started buying dollars and selling securities. "Foreign banks feared that the proposed sanctions might Affect the economy and they are tring to make an exit by selling rupees," a dealer in a public sector bank said.

HongkongBank, Citibank and ANZ Grindlays Bank were seen selling securities in a big way while nationalised banks like Central Bank and Allahabad Bank were buying. Dealers said that the rupee opened at 39.7550 and lost groundimmediately to trade at 39.78. The State Bank, however, came to the rupee's rescue and sold dollars in a big way. "The SBI must have sold dollars on behalf of the Reserve Bank of India. There was a lot of demand from importers and had it not been for the SBI it would have breached the 40 level," a chief dealer in a private bank said.

The rupee traded at 39.77/78 level throughout the day as the demand for dollars was being met by the SBI. "Although there was no change in the fundamentals, importers felt nervous apprehending that sanctions are likely to hit the Indian economy," a dealer in a foreign bank said.

In the forward segment, the six-month dollar closed at 8.25 per cent - around 1.4 per cent higher than Friday's close of 6.7 per cent. According to dealers, the SBI was seen receiving in the forward market apparently on behalf of the RBI.

The one-month forwards closed at 6.5 per cent and the one-year forwards closed at 8.60 per cent. Dealers said that the bearish sentiment will prevail for a day andtwo till the picture becomes clearer.

In the security market, prices of gilts fell by 60 to 100 paise across the board as players were extremely bearish apprehending that inflows might be affected. Marketmen feel that the RBI should come out with a purchase list which should support the prices from crashing. "The RBI told the State Bank to intervene in the forex market. Similarly, it should give direction to the debt market also," dealers said.

The list of securities affected includes the 13.05 per cent gilt maturing in 2007, the 12 per cent gilt maturing in 2008, the 11.5 per cent gilt maturing in 2004, the 14 per cent 2005 and the 11.75 per cent gilt maturing in 2006.