Mumbai: The rupee arose in the direction of a nine-year peak today after the US Federal Reserve slashed rates sending securities higher across Asia, but dollar buying by state-run banking institutions and a local company reduced a few gains.

The Fed cut on Tuesday the prime federal funds target rate by 50 basis to 4.75% from 5.25%. It also slashes the discount rate that it charges for direct loans to banks by a half-point to 5.25%.

In early trading, the partially convertible rupee was trading at a two-month record of 40.31/32 per dollar, which was up nearly half a percent from its last close of 40.48/49. In opening trades, the unit ascended as high as 40.26 within prospect of a nine-year record of 40.20 in July.

A local trader said, “They (state run banks) came in around the 40.25-30 levels, but it is difficult to say whether it is on behalf of the central bank. A steel company was also seen mopping up dollars around those levels.”

Asian currencies including the Indonesian rupiah and the Philippine peso arose over 1% each against the dollar, whereas major stock indices across the region climbed up after the US cut re-energized hunger for high-yielding assets.

Equity inflows have been a key driver for the rupee. Foreigners have bought about $1.1 billion of Indian stocks in September, taking their net investment to nearly $9.5 billion in 2007.

The 30-share BSE index climbed to a record high above 16,000 points in early trade.

But analysts are worried that the RBI may interpose around 40.20 level to defend exporter margins. The bank had purchased $38.1 billion in the first seven months of the recent fiscal in order to keep the rupee from rising too fast.

According to a JP Morgan index the rupee was overvalued by around 16% as against 6% a year ago.

A foreign bank trader said, “With oil above the $82 per barrel mark, the rupee may have already done its best for the day.”