MUMBAI, June 27 (Reuters) - The Indian rupee gained on Thursday lifted by inflows into Indian government bonds on the eve of their inclusion in the JPMorgan debt index, with traders expecting the currency to extend gains through Friday's session.
The rupee was at 83.4775 against the U.S. dollar as of 11:15 a.m. IST, up 0.1% compared with its previous close at 83.57.
Three indicators in India's foreign exchange markets pointed to foreigners, potentially passive funds, buying the country's sovereign debt on Thursday, a day ahead of the South Asian nation's inclusion into the emerging market debt index.
The inflows also helped the rupee sidestep weakness in the offshore Chinese yuan, which was lingering close to its weakest level since November.
Foreign banks were offering dollars in early trading, likely on behalf of custodial clients, a foreign exchange trader at a mid-sized private bank said.
"Interbank is mostly positioned short (on the USD/INR) in anticipation of inflows ... we could see a dip below 83.40 by Friday."
The dollar index was down 0.1% at 105.9, after rising to its highest level in two months on Wednesday, boosted by a rise in U.S. bond yields amid a pick up in inflation in other countries and fears of intervention from Japanese authorities to boost the yen.
The Japanese yen fell to its lowest level in 38 years on Wednesday but was last quoted up 0.2% at 160.39.
The rupee may "indirectly feel the heat" of weakness in the yen despite the inflows and fundamentally supportive factors, said Dilip Parmar, a foreign exchange research analyst at HDFC Securities.
Investors now await U.S. jobless claims and GDP data due later in the day. They will also keep an eye on the first U.S. presidential debate scheduled for Thursday. (Reporting by Jaspreet Kalra; Editing by Sohini Goswami)
