* Rupee gains to 53.56/57 vs 53.74/75 close on Tues
* Oil-related USD demand caps broader gains
* RBI policy review next week key for direction
By Swati Bhat
MUMBAI, Oct 25 (Reuters) - The Indian rupee rose on Friday, ending a holiday-shortened week with its first weekly gain in three, as a revival in global demand for risk prompted foreign banks to sell the greenback, but dollar demand from oil refiners limited bigger gains.
Global shares and commodity markets rose on Thursday, pulling out of their recent slide on the back of encouraging economic data from Britain and China and the U.S. Federal Reserve's latest commitment to support growth.
Traders are now eyeing the Reserve Bank of India's policy review on Tuesday, which will be key in determining whether the domestic currency can sustain the muted rebound seen this week.
"Asian currencies were appreciating and the dollar was getting beaten against other majors, which helped the rupee. But there was persistent demand from oilers," said Vikas Babu Chittiprolu, a senior foreign exchange dealer with Andhra Bank.
"Next week RBI will be watched for direction. A rate cut will surely boost the rupee. I am expecting a 53.20 to 53.95 range until the policy with foreign institutional investor demand for Asian currencies also likely to help the rupee".
The partially convertible rupee closed at 53.56/57 per dollar versus its previous close of 53.74/75.
For the week, the unit rose 0.5 percent, snapping two previous weeks of falls. Forex markets will be closed on Friday for the second time this week due to a banking holiday.
Strong dollar demand from oil firms, as is traditional towards the end of the month, prevented further gains in the rupee.
Starting on Monday, the focus is expected to shift to the central bank's review. Most analysts expect the RBI to keep rates on hold given inflation remains high, but bond markets are cautiously pricing in a surprise easing action.
A cut in the repo rate would be well received, raising hopes for economic growth and potentially sparking stronger foreign inflows into domestic stock markets.
In the offshore non-deliverable forwards market, the one-month contract was at 53.83 while the three-month was at 54.34.
In the currency futures market, the most-traded near-month dollar/rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all closed at around 53.64 with a total traded volume at $5.98 billion. (Editing by Rafael Nam)