INDIA RUPEE Rupee firms to key level as dollar falters after US inflation

MUMBAI, April 13 (Reuters) - The Indian rupee strengthened to the psychologically critical 81.85-per-dollar level on Thursday, as cooling U.S. inflation increased bets that the Federal Reserve was near the end of its rate-hiking cycle and weighed on the greenback.

The rupee finished up 0.28% at 81.85 per U.S. dollar, having risen upto 81.8375 during the session. It ended little changed for the week after rising for three straight weeks.

India's financial markets are shut on Friday for a holiday.

The South Korean won jumped 1% on the day, while the Indonesian rupiah rose 0.8% as the dollar index fell further to a two-month low, pressured by a surging euro with the European Central Bank expected to stay hawkish for longer to battle still-high inflation.

Data overnight showed U.S. headline inflation softened in March. The markets are now pricing in one last Fed rate hike, of 25 basis points, in May, followed by rate cuts from July.

However, U.S. core inflation remained elevated in March, which, analysts warned, could be a cause for concern.

"It seems that investors are very much welcoming the forthcoming Fed easing cycle. They have a conviction call that the dollar will weaken and are looking for opportunities," ING analysts wrote in a note.

The minutes of the Fed's meeting in March revealed worries about the banking crisis, with staff projecting a mild recession later this year.

That seemed to weigh on Asian equities that mostly closed lower, also dragged by a tech selloff in Hong Kong.

Meanwhile, data showed India's merchandise trade deficit widened more-than-expected to $19.73 billion in March, after two months of improvement.

Markets now await U.S. retail sales data on Friday to see how consumer spending is being affected by higher prices.