By Anushka Trivedi
MUMBAI (Reuters) - The Indian rupee advanced on Tuesday as hopes that the U.S. Federal Reserve could slow down the pace of its rate hikes buoyed risk appetite and hurt the dollar.
The rupee ended at 82.6950, against a previous close of 82.78. It traded in a narrow 10 paisa range throughout the session.
The Chinese yuan reversed earlier losses to surge, pulling up most of Asian emerging currencies along with it, as the dollar index fell 0.5% to 110.95 ahead of the outcome of Fed meeting.
The U.S. benchmark 10-year yield also dropped 9 basis points to 3.9839%, nearly 23 bps off its peak this month.
The Fed is widely expected to raise its benchmark rate by 75 basis points (bps) at the end of its two-day meeting on Wednesday. But for the December meeting, futures markets are split on the odds of a 75- or 50-bps increase.
The Fed may not immediately hint that it would slow the pace of its rate hikes, but the impact of its monetary tightening should start to show on the economy, said a trader at a large private bank, who sees a "very high chance" of a 50 bps hike in December.
Even if the dollar comes down a bit, the yuan's fortunes would remain key to the rupee for sometime, said a different forex trader at an advisory platform.
"If the yuan is depreciating, but the rupee is not, it is a negative because of India's ballooning trade deficit with China."
The Chinese currency has sunk nearly 13% this year to 15-year lows due to chaos in its property sector and strict COVID-19 curbs crimping economic activity.
The mood in equities markets was even brighter as Indian shares advanced 0.7%, while U.S. stock futures pointed to a strong open at Wall Street.
(Reporting by Anushka Trivedi in Mumbai; Editing by Dhanya Ann Thoppil)