NEW DELHI: The Indian rupee strengthened to its highest against the dollar in more than a week on bets that data will show an improving economy and faltering inflation, boosting confidence in the country’s outlook.

The rupee closed at 61.89/90 per dollar compared with 62.07/08 on Thursday. The unit rose as high as 61.83, its strongest since Jan. 2.

Indian shares provisionally edged up after touching their highest intraday level in nearly a week as software services exporters rose after Infosys Ltd’s quarterly earnings beat market expectations.

In the offshore non-deliverable forward PNDF, the one-month contract was at 62.27 while the three-month was at 63.07.

Data showing India’s trade deficit widened to $10.14 billion in December compared with $9.22 in November had little impact given it came within expectations.

“The market is expecting good factory output numbers and lower inflation. I think the rupee will continue to trade in a 61.50 to 62.50 range next week,” said Uday Bhatt, a foreign exchange dealer with UCO Bank.

“If inflation data is better than expectations and rupee breaks 61.80 levels strongly then it could head toward 61.40 but I don’t see it breaching 61 soon,” he said.

Official data showed industrial output shrank by an unexpected 2.1 percent in November, dealing a fresh blow to recovery hopes for India.

The year-on-year output fall defied market forecasts of one percent growth and marked the second straight month of contraction.

It was grim news for the government, which has been hoping for an economic turnaround before general elections due by May.

Manufacturing output, which accounts for over three-quarters of the Index of Industrial Production, shrank by 3.5 percent in November from a year earlier.

India's economy grew at a decade low of five percent last year — a far cry from near-double digit expansion during the nation's boom times — due in part to high interest rates to combat inflation that have slowed borrowing and spending.

Finance Minister P. Chidambaram has forecast that the economy will equal last year's growth of five percent, but many economists have predicted expansion in the four percent range.

The industrial output data came on top of weak export figures Friday.

Exports, which have been seen as a driver of economic recovery, grew just 3.49 percent in December from a year earlier.

The subdued export growth reflected a slowdown from previous months when overseas sales grew at double-digits, propelled by a weak rupee.

Imports, meanwhile, slumped by 15.25 percent in December from a year earlier, reflecting depressed domestic demand.