World stocks, euro near 7-week lows; German bonds fall
German government bond yields hit their highest in nearly a month on Thursday and world stocks held near 7-week lows as a weak debt sale the previous day fanned fears the euro zone debt crisis may finally begin to threaten its biggest economy.

The euro was also near 7-week lows as markets eyed a meeting of leaders from France, Germany and Italy for any signs of cracks in Berlin's resistance to stronger action to end the two-year old crisis.

Repercussions from the auction -- where bids fell well short of the 6 billion euros on offer -- extended into a second day, with Bund futures falling 115 ticks on the day to 134.66, the lowest since Oct. 31.

Ten-year German government bond yields rose as high as 2.12 percent in early trade.

Investors were reluctant to buy riskier assets even after eight consecutive sessions of losses for world stocks which should make prices attractive.

"A lot of people are still cautious with regards to the uptick and it could prove rather temporary as the backdrop is still difficult," Keith Bowman, equity analyst at Hargreaves Lansdown, said.

"Events in Europe are still dominating and the German bond auction yesterday just added another level of caution."

MSCI world equity index was steady on the day. The index has fallen 15 percent since January.

European stocks were also broadly unchanged on the day while emerging stocks rose 0.1 percent.

U.S. crude oil rose half a percent to $96.60 a barrel.

The euro was up 0.1 percent at $1.3363, having fallen as low as $1.3318 on Wednesday.

"If Germany has to pay higher costs for its borrowing, it's obvious it cannot help the entire euro zone. If German bond yields keep rising, that could even be a trigger for break-up of the euro," said Makoto Noji, senior strategist at SMBC Nikko Securities.

The dollar fell a quarter percent against a basket of major currencies.

Rupee@50 not enough to push inflation, interest rates higher
The fall in rupee value may not put additional pressure on already-high inflation and interest rates, unless the Indian currency reaches Rs 70 level versus the US dollar, global banking major Credit Suisse has said.

In a research note on falling rupee, Credit Suisse said that a massive depreciation of 16 per cent in the Indian currency since the end of July has raised concerns about further surge in inflation and interest rate levels.

Noting that it was tempting to suggest that the fall in the currency would have disastrous effect on wholesale price inflation, it said "we very much doubt it. While the rupee has softened sharply so have most international commodity prices."

It dismissed the popular notion that the falling rupee would push higher the inflation, already in the double-digit numbers for more than eighteen months now, by raising the cost of imported goods.

"The Indian rupee would need to reach 70 against the US dollar to prevent commodity price inflation from falling further," Credit Suisse said.

Credit Suisse said that the headline inflation will drop to 6.5 per cent by March, lower than the Reserve Bank of India's projection of 7 per cent.

The Indian rupee is the fourth most depreciated currency in the world and the most depreciated in the Asian continent.

Earlier this week, the rupee had hit an all-time low of Rs 50.73 against the US dollar, as investors exited from riskier emerging markets as well as eurozone assets, and made their bet on dollar -- which is seen as a "safe heaven" at times of crisis.

Though there has been some recovery in the last two days, but it is still below the 52-level.

A weaker rupee is a matter of concern for India as it depends on imports for over 70 per cent of its oil and gas requirements and the depreciation of the local currency has made imports more expensive.

Credit Suisse believes that the weaker rupee can be expected to add more than two percentage points to inflation, assuming everything else is "unchanged".

"Crucially, however, everything else is not unchanged. In particular, US dollar-denominated commodity prices have been falling" Credit Suisse said.

The report further notes that the rupee-denominated commodity price inflation has already halved from 40 per cent to 20 per cent and will drop to 3 per cent by March 2012 - the end of the current fiscal year.

"Although the relationship with the overall WPI index is not perfect it is not bad and very clearly suggests that the risks to the headline WPI rate is on the downside," the report added.