The rupee seems to be taking the brunt of the recent developments related to the nuclear explosions. After opening at 41.60/42, the rupee strengthened to 41.41/50 as the State Bank of India intervened on behalf of the RBI and sold dollars to prop up the rupee. But once SBI made an exit, the rupee dipped to 41.72/77 per dollar. However, SBI once again entered the market and the rupee gained to trade at 41.62/65, but genuine importer buying saw the rupee weaken once again to close at an all-time low of 41.65/70.

With this fall, the rupee had depreciated by 5.2 per cent after the BJP government took over two months ago.Immediately after the markets opened today, the Reserve Bank of India made a statement that these developments (explosion in Pakistan) will have no financial implications. "Financial markets are expected to continue to function normally. RBI will closely monitor the market developments including forex markets and take such action as may be necessary to ensure continued orderly conditions," a statement issued by the RBI said. This statement somewhat boosted the sagging market morale.

"Corporates and banks are not sure about inflow of dollars in the future. The deterioration in the relations between India and Pakistan might lead to more uncertainties. The explosion in Pakistan has increased the risk perception of foreign investors in the sub-continent," said a forex dealer. This has come after the US sanctions on India and downgrading of the country's outlook by Standard & Poor's.

Indicating further depreciation in spot rupee, the annualised premium on the six-month forward dollar rose to 9.11 per cent from8.80 per cent by early morning and went up further during the day to 9.50 per cent. Dealers said the undertone was bearish as the market remained uncertain about future dollar supplies.

It is learnt that the Reserve Bank of India has advised large banks not to go long on dollars in a bid to check inter-bank speculation in the foreign exchange market. The apex bank reportedly told banks not to go long on dollars after the rupee closed at 41.90 at kerb deals on Thursday.

Finance Minister Yashwant Sinha echoed the central bank's comments, saying that the government's policy is to prevent excessive rupee volatility. "The policy of the government is to maintain orderly conditions in the currency market. The policy of the government is to ensure that no undue volatility takes place," Yashwant Sinha told the lower house of India's parliament.

On the stock market front, there was heavy selling pressure in the opening session. Sensex had fallen by 133 points at one stage. However, financial institutions led byUTI made massive purchases and reversed the trend.

Sensex still closed with a loss of 36 points at 3686.39. The Nifty index declined by 12.40 points to close at 1,063.15 points on the NSE.

The recovery towards the end was mainly buying support extended by UTI at index-based counters to the tune of Rs 150 to Rs 200 crore. The recovery was also due to statement issued by the central bank that yesterday's developments have no financial implications for India. The proposal in railway budget to mop up Rs 450 crore by increasing rail fares across-the-board had been welcomed by the marketmen saying "this burden is not that harsh and provide indication of favourable budget to be presented on Monday".

FIIs, who have already pulled out $ 155 million (over Rs 600 crore) in May alone, bought several scrips. Morgan, Jardine Fleming, Capital International and Quantum were active in the market.