Dealers indicated that 41.20 is the new resistence level for the rupee. "If this is crossed, the rupee could be seen testing the 41.40 level. Corporates seem to be comfortable with the present exchange rate and we do not expect them to cover till the 41.20 mark is breached," said a dealer with a private bank. The Indian unit opened at 41.05 and dipped initially to 41.10/13 on a spate of interbank buying in the morning on anticipation of corporate demand. Dealers said there was a bit of month-end demand for the greenback and what appeared to be a bunching together oftrades. The rupee stabilised against the dollar in mid-morning trade as nerves cooled after early morning jitters. Trades were thin in the inter-bank spot market and corporate demand appeared to have petered off. Most of the trades were struck in the 41.10-41.15 band. The dollar's high for the day was 41.17 while its low was at 41.09.

The six-month annualised forward cover ended at 9.13 per cent. "There was not much covering today... most of the corporates appear to have done so on Monday," dealers said. The State Bank of India was seen receiving May dollars towards the close of trades. June dollars closed at 31/33 paise, July at 60/62 paise, August at 91/93 paise, September at 122/127 paise and October at 158/160 paise. The one-month annualised forward cover closed at 8.56 per cent, compared with its previous close at 8.83 per cent, two months at 8.72 per cent (8.91 per cent) and three months at 8.68 per cent (8.86 per cent).

Standard Chartered Bank's treasury economist Vasan Sridharan said: "The notionof the rupee's overvaluation was taken up by domestic market players and many rushed to hedge the dollar. The change also bought a convergence of views between onshore and offshore players. Offshore players turned bearish on the rupee after earlier developments in Indonesia had rocked Asia again." The Indian rupee's fall in the last two days was exaggerated and the currency should strengthen soon, Arun Dobe, vice president and director for foreign exchange at Bank of America, said.