INDIA RUPEE-Rupee nudges higher but US tariff-driven swings keep traders cautious

By Jaspreet Kalra

MUMBAI, July 8 (Reuters) - The Indian rupee gained slightly in early trading on Tuesday, in line with an uptick in most Asian peers while traders remained light-footed, awaiting clarity on the ongoing trade negotiations between India and the United States.

The rupee INR=IN rose to 85.71 per dollar as of 10:25 a.m. IST, up 0.16% on the day.

Most regional peers gained after U.S. President Donald Trump pushed back the imposition of steep reciprocal levies to August 1, effectively giving countries time to secure trade deals.

A total of 14 countries received letters from the White House with the levies their exports to the U.S. would face in a little over three weeks' time. On India, Trump said he was close to making a deal with the country.

The market reaction to the latest U.S. trade salvo was relatively muted as market participants took comfort in the fact that there was still time for countries to negotiate with the world's largest economy.

"This modest reaction is perhaps a function of the market pricing in the ability to negotiate down tariffs, or perhaps a continuation of the TACO (Trump Always Chickens Out) trade," MUFG said in a note.

Nonetheless, uncertainty about the final outcome of trade negotiations is likely to keep aggressive wagers on the rupee at bay, given the risk of news flow-driven moves, traders said.

The rupee's sharp fall in the previous session caught many traders on the wrong side, spurring a degree of caution going forward, a trader at a private bank said.

The local currency weakened by as much as 0.7% on Monday on Trump's threat to levy a 10% tariff on BRICS countries.

Separately, a source familiar with the matter told Reuters that the tariff would be levied only if countries take so-called "anti-American" policy actions.