The overnight rates opened at 7.50-8 per cent on Monday and touched a high of 8.75 per cent.

"There was demand for funds from banks even at higher levels," dealers said.The call rates firmed up as the central government collected more than Rs 5,000 crore through its on-tap sale of six- and 10-year papers in the market. Despite ample liquidity in the system, lenders tried to push up rates, dealers said, pointing to the Rs 3,264 crore mopped up through a three-day fixed-rate repos by the Reserve Bank of India. By the close, the call rates had fallen to 7.25-7.50 per cent.

Meanwhile, the turnover of the Securities Trading Corporation of India was higher at Rs 3,100 crore on a weighted average of 7.66 per cent.

FORECAST: The call rates are likely to open at 7.25-7.75 per cent on Tuesday.

Spot Dollar

The rupee fell to its historic low of 42.85 against the dollar on Monday as Moody's downgrade affected the forex market.

The rupee opened at 42.33/38, compared with itsprevious close of 42.17/22, and soon weakened to 42.50. At this level, the State Bank of India sold dollars in small amounts, dealers said.

Later, as the dollar demand rose, the State Bank stayed away and the rupee weakened to its intra-day low of 42.85.

"Profit taking by banks and dollar inflows at 42.85 saw the rupee gain to 42.60," a dealer in a European bank said. But, fresh dollar demand saw the rupee close at 42.71/74.

Cash/spot was quoted at 2/3 paise and cash/tom at 1/1.5 paise.

Elsewhere, the Reserve Bank of India pegged its reference rate for the dollar at 42.69, compared with its previous peg of 42.20.

FORECAST: The rupee is likely to trade in the 42.74-42.85 band on Tuesday.

Forward premiums

Forward premiums rose on Monday tracking a weaker spot rupee and firmer call rates. The six-month annualised forward cover closed at 12.25 per cent, compared with its previous close of 10.43 per cent.

"Forward climbed higher as corporates with unhedged positions rushed to cover,"Global Trust Bank treasury-head A Anchan said. July dollars ended at 59/61 paise, August at 104/106 paise, September at 148/150 paise and November at 227/232 paise. "There was a fair bit of paying pressure in July and September maturities," dealers said. In the far forwards, March dollars ended at 396/400 paise, April at 428/433 paise and May at 463/470 paise. The one-month annualised forward cover closed at 13.95 per cent (12.15 per cent), two months at 13.43 per cent (12.15 per cent) and three months at 12.94 per cent (11.36 per cent), dealers said.

FORECAST: The six-month annualised forward cover is seen at 12.20-12.30 per cent on Tuesday.

Gilts

Prices in the short-term government securities market fell by 5-10 paise on Monday owing to dull trades.

Traders are not active as they are unable to predict the interest rate movement, dealers said. "Most traders are not taking positions in the market as the interest rate movement is quite uncertain," a dealer said.

The wholesale debtmarket of the NSE witnessed trading worth Rs 106.10 crore. The 11.64 per cent government loan maturing in 2000 saw trades worth Rs 25 crore at a weighted yield of 11.19 per cent while the 364-day treasury bills maturing on October 9, 1998, saw trades worth Rs 15 crore at a weighted yield of 9.18 per cent.

FORECAST: The prices in the government securities market are likely to fall further on Tuesday.