INDIA RUPEE-Rupee ends lower on possible importer demand; Fed in focus

By Sethuraman N R

BENGALURU, July 26 (Reuters) - The Indian rupee weakened on Wednesday as importers bought dollars ahead of the month-end, while investors also covered short-dollar positions ahead of the U.S. Federal Reserve's policy outcome due later in the day.

The rupee ended at 81.9950 against the dollar, compared to its previous close of 81.8700.

On Tuesday, the had rupee touched 81.6650, its highest since early May, but dollar buying intervention from the Reserve Bank of India (RBI) pushed it back.

RBI's persistent intervention has helped India's foreign exchange reserves climb back above $600 billion.

"Markets are more vulnerable for any hawkish surprise from FOMC than dovish guidance," said Arnob Biswas, FX research head at SMC Global.

Chances of another rate increase in November have grown to about 34%, versus 26% a week ago, according to the CME's FedWatch tool.

Asian currencies were mixed before a certain Fed rate hike later in the day, which investors bet will likely be the last for the current rate hike cycle, mainly driven by a fall in the U.S. inflation.

The dollar index fell 0.2% to 101.13 ahead of the Fed outcome, but has recovered from a 15-month trough of 99.549 hit a week ago.

"It looks far too early for the central bank to soften up its FOMC statement by embracing recent disinflationary trends. This should see the dollar holding onto some of its modest gains made over the last week," ING analysts said in a note. (Reporting by Sethuraman NR in Bengaluru; Editing by Varun H K)