* Rupee drops to a 1-wk low from a near 3-wk high hit at
* Losses in domestic shares add to rupee slide
* Next key support seen at around 54.45 levels-trader
MUMBAI, Feb 28 (Reuters) - The Indian rupee weakened sharply
on Thursday, retreating from a three-week high hit earlier,
after the 2013/14 budget increased spending despite keeping
fiscal deficit targets in place, while measures to attract
foreign flows were seen as limited.
For the fiscal year starting in April, India proposes to
raise spending by funding it with higher revenues in a budget
aimed at reviving growth.
Although the fiscal deficit target was maintained at 4.8
percent of gross domestic product, investors had expected a
closer check on spending and were disappointed as the government
sought to increase taxes on certain individuals and companies.
Those tax proposals hit stocks, and the government also
disappointed some investors by not announcing a cut in debt
"The market was expecting a lot from the finance minister.
The budget itself is not negative, but given the promises, the
market was expecting a lot more," said Hari Chandramgethen, head
of foreign exchange trading at South Indian Bank.
"I expect 54.45 to be the next key resistance for the
USD/INR today," he added.
At 2:30 p.m. (0900 GMT), the partially convertible rupee
was at 54.32/33 per dollar compared to its close of
53.86/87 on Wednesday. The unit dropped as low as 54.3350, its
lowest since Feb. 22.
Before the budget was unveiled, the rupee had risen as high
as 53.59, its strongest since Feb. 8.
Finance Minister P. Chidambaram announced a budget that kept
total spending at 16.65 trillion rupees, above some market
estimates, while proposing a 10 percent tax surcharge on
wealthier taxpayers and for certain companies above a certain
Despite simplifying the investment registration process,
Chidambaram also disappointed investors by not cutting the
withholding tax on corporate and government bonds.
"The absence of a cut in withholding tax also disappointed.
Debt flows would have increased had the government cut the WHT,
which would have been positive for rupee as well," said Vikas
Babu Chittiprolu, a senior foreign exchange dealer with
state-run Andhra Bank.
(Editing by Sunil Nair)