India's rupee rose, climbing beyond 42 to the dollar for the first time in almost two weeks, as a drop in crude oil prices reduced demand for dollars from refiners.

The rupee was the best performer of the 10 most-traded currencies in Asia outside Japan today, as crude oil in New York fell to the lowest in three months. The rupee also advanced on speculation gains in local stocks will encourage overseas investors to increase their holdings of the nation's assets.

``It's a big relief for refiners as they weren't expecting oil prices to slide this way in less than a month from their peak,'' said Ravindra Babu, a currency trader at state-owned Andhra Bank in Mumbai. ``Investors are now pricing further gains in the rupee on expectations that oil will fall more.''

The rupee rose 0.6 percent to 41.995 per dollar at 11:43 a.m. in Mumbai, according to data compiled by Bloomberg. It touched 41.95, the strongest since July 24. The rupee may climb to 41.80 in the near term, Babu said.

Crude oil has fallen about 6 percent in the past week to $118.63 a barrel on the New York Mercantile Exchange. It fell as low as $118 yesterday, the least since May 5.

India paid an average $8 billion a month this year for oil imports, compared with $5.5 billion in 2007, government data show.

The rupee strengthened for a second day after the benchmark Bombay Stock Exchange's Sensitive Index, or Sensex, yesterday posted its highest close in almost seven weeks.

``Flows should increase in the region as the overall investment sentiment is changing for the better,'' Babu said. ``Improved dollar supplies should support the rupee.''

Goldman Sachs Group Inc. recommended investors buy the rupee and sell a basket of currencies like the dollar, the yen, the euro and the Australian dollar, due to the decline in oil prices.

``The negative effect of higher oil prices was priced into the currency in the first half of the year and oil prices have now dropped significantly,'' wrote New York-based Goldman strategist Jens Nordvig in a research note yesterday. ``We think the rupee has yet to fully respond to this better news.''