EVENING REPORT-SEP 08.

Rupee erased most of its gains made in early trade and closed at 42.59 levels as banks persistently bought dollars on behalf of oil companies. Some banks also bought U.S dollar noting that it regained its strength against major currencies .A further recovery in dollar may weaken rupee more. Empty economic calendar will leave the dollar price action subject to the ongoing interpretation of the potential impact of the U.S. government takeover of Fannie Mae and Freddie Mac. Although the greenback gained against the Sterling and Euro overnight, weakness against the Yen shows that the move has sparked concerns that the move is a sign that the U.S. financial sector has more cracks to be revealed. The Euro failed to break support at 1.4160 again after a drop in investor confidence. Concern generated by the Fannie Mae and Freddie Mac takeover pushed the EURUSD as high as 1.4430 before the pair nosedived as traders tried to decipher its potential impact. Soft Euro was pushed lower as the Sentix investor confidence reading fell to -20.2. The current situation component sharply fell to -12.00 from 0.0 as lingering credit concerns and a declining economy soured sentiment. Pound saw similar price action as the Euro with initial strength giving way to profound weakness, leading to a fall of over 400 bps .U.K. producer prices unexpectedly dropped the most in 22 years on lower oil prices and declining raw material costs, which added to the Sterling’s weakness .Prices at the factory gate also fell 0.6% in August pulling the annualized rate to 9.7%.Dollar rocketed higher versus the yen, rising to 109 after hitting a month and a half low of 105.55 in the previous session. With global stocks surging higher as investors cheered the government bailout of Fannie and Freddie and increased risk appetite led currency traders to sell the lower-yielding yen.