* Rupee at 54.88/89 vs 54.75/76 close on Fri
* USD/INR breaks major 100-dma resistance
* Trade deficit widens to $21 bln in Oct
By Subhadip Sircar
MUMBAI, Nov 12 (Reuters) - The Indian rupee fell to its lowest in two months on Monday after data showing a record trade deficit and contraction in factory output stoked fears about economic growth at a time of continued high inflation.
The rupee's fall to as low as 55.12 to the dollar on Monday has erased a rally sparked by the government's announcements of a slew of fiscal and economic reforms in mid-September that sen the local currency to as high as 51.32 on Oct. 5.
However, the rupee has steadily slipped since that peak, as investors resume their focus on an economy set to grow at its slowest pace in a decade and on the reduced prospects of immediate rate cuts as Reserve Bank of India retains its focus on inflation.
The trade deficit "is negative on the rupee. The uptrend in headline WPI into 8 percent has come into radar now. The rupee will need strong support from the euro to prevent extended weakness beyond 55.10," said Moses Harding, head of asset liability management at IndusInd Bank.
The partially convertible rupee fell for a third session to end at 54.88/89 per dollar, after hitting a session low at 55.12, a level last seen Sept 13.
It had closed at 54.75/76 on Friday.
Domestic currency markets will be closed on Tuesday and Wednesday for the Diwali holidays.
The rupee now is at near the levels when the government in mid-September raised diesel prices and said it would ease foreign investment rules into the aviation and multi-brand retail sectors, sparking a rally in domestic markets.
Still, it remains well above the record low of 57.32 hit in late June.
Traders warn more losses could be in the store, after USD/INR ended above the 100-day moving average, which had acted as major resistance in recent sessions.
Data on Monday showed the trade deficit widened to $20.9 billion, marking a record, according to a Credit Suisse e-mail to clients sent after the data.
Other reports also proved worrisome for investors, with industrial output unexpectedly contracting 0.4 percent in September, while consumer price inflation remained elevated.
India is due to post October wholesale price index data on Wednesday, with analysts expecting headline inflation to have accelerated 7.96 percent, marking an 11-month high.
High inflation will likely deter the central bank from cutting interest rates this calendar year. The RBI signalled after its policy review on Oct. 30 any easing in monetary policy would not come until the January-March quarter.
In the offshore non-deliverable forwards segment, the one-month contract was at 55.15 while the three-month was at 55.75.
In the currency futures market, the most-traded near-month dollar/rupee contract on the National Stock Exchange and the MCX-SX closed around 55.11 with a total traded volume of $5.3 billion. (Editing by Rafael Nam)