By Swati Bhat
MUMBAI (Reuters) - The rupee rose on Friday, after earlier hitting a three-week high against the dollar, on continued strong buying of debt and shares by foreign investors, while gains in emerging market currencies also contributed to the improved sentiment.
The rupee was also helped after Bloomberg quoted an analyst at Standard & Poor's calling the government's target to lower the fiscal deficit a positive for the country's ratings, helping the currency rise to a session's high.
The rupee put on 0.5 percent for the week, a third straight week of gains, as foreign funds turned active buyers of Indian assets, especially debt, despite lingering concerns in global markets including the prospect of earlier-than-expected U.S. rate hikes.
Foreign institutional investors bought debt worth $2.65 billion on Wednesday alone, which some traders called the biggest single-day buying on record. That took total inflows into the debt and sharemarket so far in 2014 to about $29 billion.
However, caution set in ahead of U.S. Federal Reserve Chairwoman Janet Yellen's speech at Jackson Hole, Wyoming, due later in the day.
"Geopolitical tensions have eased and market expects Yellen to be more dovish at the Jackson Hole meeting," said Ashtosh Raina, head of foreign exchange trading at HDFC Bank.
"The overall trend points towards more appreciation in the rupee. It will all depend on the (foreign) flows, however, and the central bank will let it gain in a gradual manner while also accumulating reserves," he added, predicting a range of 59.60 to 61 over the next month.
The partially convertible rupee closed at 60.4650/4750 per dollar compared with 60.67/68 in the previous session. The unit rose to 60.3750, its strongest level since July 31.
Most other Asian currencies also rose as the dollar rally lost steam ahead of Yellen's speech, adding to positive sentiment for the rupee.
Broader gains were, however, capped on the back of some dollar demand from oil importers at 60.40 levels, traders said.
In the offshore non-deliverable forwards, the one-month contract was at 60.76, while the three-month was at 61.33.
(Editing by Prateek Chatterjee)