The rupee gained in early deals on Friday, helped by firm Asian stocks and on expectations local markets will extend gains made in the previous session accompanied by some foreign inflows. At 9.35 a.m., the partially convertible rupee was at 42.825/875 per dollar, stronger than Thursday's close of 42.90/91.

Foreign funds have pulled out $4.5 billion from Indian shares this year, pulling the market down more than a fifth. In 2007, the funds had bought a record $17.4 billion and helped stocks rise 47 percent and the rupee gain more than 12 percent.

Rising prices in recent weeks have raised expectations of a rate increase in the near term which may enhance the value of rupee-denominated assets. Annual inflation in late May is expected to come in at 8.3 percent, its highest in more than 3- years, due to higher oil and food prices, a poll forecast on Thursday.