INDIA RUPEE-Rupee pinned near key support on corporate dollar demand, cloudy tariff outlook

By Jaspreet Kalra

MUMBAI, July 14(Reuters) - Dollar demand from foreign banks and a large local corporation, alongside tepid risk appetite amid lingering uncertainty on U.S. trade policies, drove the rupee lower to a closely watched support level on Monday.

The South Asian currency INR=IN fleetingly weakened past the 86 level in early trading and before paring losses to last quote at 85.97 as of 10:45 a.m., down 0.2% on the day.

Asian currencies were mostly weaker, while the dollar index was hovering just shy of the 98 mark.

President Donald Trump on Saturday threatened to impose a 30% tariff on imports from Mexico and the European Union starting on August 1, adding them to a list of countries that have received letters from the U.S. declaring country-specific levies.

India and Taiwan are among the large U.S. trading partners that have not yet received letters declaring the tariff rate.

A constant barrage of tariff-related headlines, along with the expectations that these are merely negotiating tactics, has dampened market reactions, such as the euro, which slipped just 0.1% on Monday.

"The game between Trump and the market is subject to multiple equilibria," BofA Global Research said in a note.

The note added that it would be key to watch how much renewed tension risky assets can withstand before correcting lower, and how much pain Trump would tolerate before de-escalation occurs.

Asian equities were mostly in the green on Monday, while futures for the euro-area and U.S. stock gauge were in the red. India's benchmark equity indexes, the BSE Sensex .BSESN and Nifty 50 .NSEI, each was down about 0.3% on the day.

Dollar bids from foreign banks, likely on behalf of custodial clients, also exerted pressure on the rupee, a trader at a private bank said.

India's consumer inflation data for June is due after FX market hours on Monday.