INDIA RUPEE-Rupee posts best day in a month as investors gear up for Fed outcome

By Jaspreet Kalra

MUMBAI, Sept 17 (Reuters) - The Indian rupee rose on Wednesday, supported by a weaker dollar ahead of an expected U.S. Federal Reserve rate cut and upbeat sentiment from trade talks with Washington.

The rupee INR=IN rose to an intra-day peak of 87.73 during the session before ending at 87.8150, up 0.27% on the day, its best one-day gain since August 19.

The rupee sank to a record low of 88.4550 last week on worries over steep U.S. tariffs but has since gained 0.2% this week, aided by upbeat U.S.-India trade talks and expectations of imminent Fed easing.

"The negative bias on the rupee has eased slightly but it's quite likely that dollar demand related to importer hedging will limit gains near 87.50 in the near-term," an FX salesperson at a foreign bank said.

Trade discussions between Indian and U.S. officials on Tuesday were "positive" and "forward-looking", New Delhi said on Tuesday.

Meanwhile, money markets are fully pricing in a 25 basis point cut by the Fed later in the day with focus on remarks from Fed Chair Jerome Powell and policymakers' updated economic and interest rate projections.

"While the near-term bias for the rupee is tilted towards further appreciation, we caution that any hawkish tilt from the Fed or adverse developments on the trade policy front could temper gains and reintroduce volatility," said Abhishek Goenka, founder & CEO of FX advisory firm IFA Global.

Market participants will also watch whether policymakers considered a larger 50-basis-points cut as President Donald Trump pushes ahead with plans to overhaul a pillar of the U.S. economy and casts a shadow on the central bank's independence.