MUMBAI: The Indian rupee is likely to be weaker on Friday after robust U.S. data prompted doubts about whether the Federal Reserve will cut rates later this year, pushing the dollar and U.S. Treasury yields higher.

Non-deliverable forwards indicate the rupee will open marginally weaker to the dollar from 83.28 in the previous session.

The rupee rose for the third day on Wednesday, hitting the highest in six weeks. Indian foreign exchange and money markets were closed on Thursday.

The near-term downward bias on the dollar/rupee "may well be over and we will probably see a return to the 83.40 kind of levels", an FX trader at a bank said.

"You have the dollar higher and then I think you will see less appetite for a push lower (on dollar/rupee)."

U.S. data showed persistent strength in the labour market and business activity, prompting investors to reduce the probability that the Fed will cut rates later this year.

U.S. initial claims for state unemployment benefits dropped more-than-expected and U.S. business activity accelerated to the highest in more than two years in May.

The activity data highlighted improving growth momentum at the mid-way point of Q2 and the need for ongoing caution with respect to monetary policy, ANZ Bank said in a note.

Odds that after the Fed's September meeting, the policy rate will remain at the current level of 5.25%-5.50% were up to 46%, as per the CME FedWatch Tool.

The dollar index reclaimed the 105 handle and the two-year U.S. yields made an intraday high of 4.96%.

Expectations on whether the Fed will cut rates later this year have had to contend with an April inflation reading that was softer, remarks from policymakers calling for patience on rate cuts and the mostly upbeat U.S. data.


KEY INDICATORS: ** One-month non-deliverable rupee forward at 83.38; onshore one-month forward premium at 7.50 paisa

** Dollar index up at 105.08 ** Brent crude futures at $81.3 per barrel ** Ten-year U.S. note yield at 4.47% ** As per NSDL data, foreign investors sold a net $225.2mln worth of Indian shares on May. 21

** NSDL data shows foreign investors bought a net $86.9mln worth of Indian bonds on May. 21 (Reporting by Nimesh Vora; Editing by Sohini Goswami)