Rupee rose as stock gains fueled optimism overseas investors will return to buy local shares at a cheaper price following a 10% plunge in the benchmark index from its July record. The Bombay Stock Exchange Sensitive Index, or Sensex, rebounded as much as 1.9% following its worst week in five months. Economic growth at 9.4% in the year ended March 31, the fastest in almost two decades, helped push the rupee up 8.2% this year, making it Asia?s best performer.

?The rupee is moving in tandem with stocks,” said Paresh Nayar, chief of bonds and currency trading at Development Credit Bank Ltd in Mumbai. ?Further strength will depend on how much appetite foreign funds have for risk, especially after the recent global credit crisis.? The rupee climbed 0.4% to 40.895 against the dollar in Mumbai, according to data compiled by Bloomberg. India aims to attract $5 billion in investment from Japanese companies, Commerce and Industry Minister Kamal Nath said. The two countries are working to expand trade that doubled in the past three years, a Japanese official who accompanied Prime Minister Shinzo Abe to New Delhi, said.

The rupee has dropped 1.6% from a nine-year high in July as global funds, fleeing riskier emerging market assets following subprime mortgage losses and a credit squeeze, turned net sellers of Indian stocks on five days through August 17.

Global funds sold $802.4 million more local shares than they purchased on August 17, the most in a day since at least 1999, according to the Securities & Exchange Board of India.

Bond yields fell to the lowest in two weeks after crude prices in New York slipped below $70 per barrel for the first time since June. India meets three-quarters of its energy requirements through shipments from abroad. Inflation slowed to 4.05% in the first week of this month from a two-year high of 6.69% reached in January.

?Bonds have good support because inflation is expected to decline as oil eases,? said Rajesh Babu, a fixed- income trader with state-owned Andhra Bank Ltd in Mumbai.?The government report on Friday may show inflation fell below 4% after a long time.?

The yield on the benchmark 7.49% note due April 2017 fell 3%, to 7.93% in Mumbai, according to the central bank?s trading system.