The rupee which earlier opened at 40.75/77 finally closed at 40.94/97, but in the kerb the rupee closed at 41.03. ``I think the weakening of the rupee reflects a concern over the balance of payments position," said an economist at Standard Chartered Bank.``The S&P's rating was the trigger point while the budget will hold the key for the rupee in the near term,'' said PH Ravikumar, executive vice president, ICICI Bank.

According to him, the rupee is likely to touch 41.50 by June end, but dealers in European banks said that the rupee islikely to test that level on Tuesday itself.On the other hand, stock markets ignored the S&P rating and remained steady. Sensex gained 11 points at 3,908.11 following limited buying support. The rupee fall is expected to benefit FIIs as their earnings will go up. ``The falling rupee did not affect the market as it has already been perceived to go to the 42-43 levels,'' said Piyush Vora, director, Piyush Vora Securities.

However, S&P today revised the foreign currency ratings on six companies - including Reliance Industries, Telco, Power Finance Corporation (PFC), NTPC, Tata Electric Companies and Larsen & Toubro from `stable' to `negative'. However, banking sources ruled out any impact as except PFC no other company has announced foreign borrowings. ``The revision will lead to a rise in cost of borrowings,'' said a banker.Analysts said that the revised ratings mean a rise in the interest outgo to the tune of $20-30 million. This has already made an impact on the foreign exchange market and the spot rupeepierced the 41-mark against the dollar on Monday.

The downward revision in outlook also means that the cost of borrowing for Indian corporates will be jacked up by 50-100 basis points. The $100-million Power Finance Corporation foreign currency borrowing may run into rough weather as investors have been shunning Indian papers at lower rates.

The rating agency has stated that the performance of IDBI, ICICI and Bank of Baroda has been satisfactory.S&P had on Friday revised the outlook on India's sovereign rating to `negative' from `stable' as it felt that in the medium and the long term the sanctions imposed by the United States will hurt the Indian economy. This has now raised the specter of Moody's - another global rating agency - downgrading India to sub-investment grade from investment grade.

Tracing the day's developments, a dealer said the rupee opened at 40.75/80, weaker than its previous close of 40.65/67 and fell to 40.80/95 immediately. State Bank of India sold dollars - apparently on behalf ofthe Reserve Bank - to prop up the rupee. But once the SBI left the market, the rupee breached the 41 mark to trade at 41.18/20. SBI is reported to have sold dollars at this level which saw the rupee gaining ground to close at 41.94/97.``The rupee fell because of demand from importers who wanted to cover as they felt that the rupee will weaken after the S&P's revised rating.

Capital inflows are likely to dry up until the budget opens up the insurance sector or eases some controls on foreign direct investments,'' said a forex dealer, adding that the budget would be a key factor in determining the direction of the rupee.``The new scenario raises doubts over future flows of foreign currency into the country through external commercial borrowings (ECBs). Last year we had around $4.5 billion in the first six months through ECBs. We have to see how much comes in this year. Foreign capital inflows through other sources have already slowed down this year,'' said a banker. In the meantime, the forward premium ondollar (six months) rose to 9.35 - 100 basis points more than Friday's close of of 8.30 per cent.