The Indian rupee climbed to its strongest finish in over a week as investors poured funds into the record-setting stock market, brushing off concerns about new investment restrictions on unregistered foreigners.

The partially convertible rupee ended at 39.445/455 per dollar, rising smartly from Thursday's close of 39.55/56, with its gains moderated by importer demand for dollars and some sporadic central bank intervention.

The rupee hit 39.27 earlier this month, its highest since March 1998. Foreign buying of equities has been a key driver of its gains of more than 12 per cent this year.

'There were immense flows today, which is why the rupee closed above 39.50, despite efforts to stop it by the central bank,' said a senior dealer with private bank.

'The market has digested the news from the regulator, and the consensus seems to be that at worst, flows are going to moderate a bit,' the dealer added.

On Thursday, the stock market regulator said it would restrict issuance of indirect investment notes to unregistered foreigners to stem inflows of anonymous money.

Still, the benchmark share index surged to a record close on Friday, and gained 9.6 per cent on the week. It has risen 23 percent, and hit record highs in 20 of 27 sessions, since the US Federal Reserve cut interest rates on Sept 18.

Data showed foreign funds were net buyers of $53 million of shares on Thursday, taking their net investment to $17.1 billion so far this year -- well above the full-year record inflow of $10.7 billion in 2005.

Of that, almost $8 billion has come since the Fed rate cut.

The Reserve Bank of India bought $40 billion in the first eight months of the year in a bid to stem the rupee's ascent, and traders said it has been active in September and October as well.

Despite that, most analysts expect the rupee to keep strengthening. On Friday, Singapore bank DBS upwardly revised its rupee forecast to 37 per dollar by the end of 2008.Reuters