"Corporates are not too concerned. They feel the current situation will blow over," said Satyajit Kanjilal, head of treasury-sales at Credit Agricole Indosuez.

Corporate treasuries set the trend for rupee dollar trade in India's controlled market, where speculation is kept in check.

Top forex traders said they were still cautious over the Kashmir issue but it was the Reserve Bank of India which seemed to want a slightly weaker rupee rather than the market.

"The Reserve Bank of India might want a slightly weaker rupee but in a very controlled fashion. The rupee could, at the worst, weaken to 43.50 over the next few months," said Sunil Sharma, head of forex trading at ANZ Grindlays Bank.

The rupee was quoted at 43.03/04 per dollar at noon (06:30 GMT) on Wednesday compared to 42.75 on May 26 whenIndia first launched air strikes against guerrillas who, according to New Delhi, are supported by Pakistan.

Since 1995, the Reserve Bank of India has ensured a gradual weakening of the rupee, holding it steady for long spells and then triggering small drops.

In August 1997, RBI Deputy Governor Y.V. Reddy ended the rupee's 14-month long steady level of 35.70/dollar by a comment on its overvalued status. That was followed by the the Asian crisis and nuclear tests which took it further down.

Last weekend, while rupee traders were still fumbling with charts to see if the currency would recover from the Kashmir impact, another deputy governor, Jagdish Capoor, told Reuters the central bank would not stand in the way if the market was determined to push the rupee lower to 43 plus.

That was an important indication to the market which would normally be shy of getting caught with a position beyond 43.

India holds record high foreign exchange reserves of $33.5 billion and in a market where daily volumes arejust around $300 million the central bank could have easily yanked the currency back to 42.80/90 to the dollar.

Capoor's comment was followed by dollar buying by the State Bank of India, which often acts on behalf of the central bank.

Importers were therefore comfortable and doing very little hedging, dealers said.

"Importers are beginning to look at the rupee again, but not doing much. Based on the price action since May which shows a gradual rupee slide, some are putting through partial hedges on very short-term exposures," said V.Ravikumar, chief dealer at ABN AMRO Bank.

Technically too the rupee is not seen falling sharply until it hits a slightly lower range.

"The 43.08-43.12 range is a triple top. Once that breaks there could be a very good move (lower for rupee) in a very short time," Ravikumar said.

"But only a declaration of war can cause that. There are no internal shocks due," he said.