INDIA RUPEE-Rupee weakens as corporate dollar outflows eclipse Fed boost

(Updates with mid-session trading)

By Jaspreet Kalra

MUMBAI, Dec 11 (Reuters) - The Indian rupee weakened on Thursday, weighed down by outflows tied to near-term dollar payments by local corporates, which offset the positive impulse from the Federal Reserve's rate cut and less-hawkish-than-anticipated commentary.

The rupee weakened nearly 0.3% to 90.21 against the U.S. dollar, as of 10:30 a.m. IST.

A sharply divided U.S. Fed cut interest rates on Wednesday but signalled borrowing costs are unlikely to drop further in the near term.

Asian currencies were trading mixed on Thursday, while the dollar index recouped some losses after dropping to a near two-month low following the Fed's rate decision.

Weakness in the greenback offered little relief to the rupee, with traders citing dollar demand from foreign and local private lenders, likely tied to merchant payments.

The rupee is on course for its worst yearly fall since 2022 as the currency has borne the brunt of challenges to India's external sector ranging from weakness in portfolio flows to steep U.S. trade tariffs on Indian exports.

India Commerce Secretary Rajesh Agrawal met U.S. Deputy Trade Representative Rick Switzer to discuss bilateral trade and economic ties, the government said on Wednesday.

Switzer is leading a U.S. team in New Delhi for two days of trade discussions, as India seeks relief from punitive tariffs imposed by Washington over its purchases of Russian oil.

Analysts and bankers reckon that the rupee could be exposed to steeper losses in the absence of a trade deal with the U.S.

Meanwhile, the focus will also be on a $5 billion dollar-rupee buy/sell swap to be conducted by the Reserve Bank of India next week, as part of its measures to inject liquidity into the local banking system.

Traders and bankers expect the swap to see healthy interest from market participants and it could help ease the excess dollar liquidity in the banking system on account of the RBI's previous dollar-selling interventions and IPO related inflows.

(Reporting by Jaspreet Kalra; Editing by Sherry Jacob-Phillips)