By Giri Venkatesan

     BOMBAY, Sept 17 (Reuters) - India's bruised financial markets were again battered on Monday morning with the rupee sinking to a new lifetime low and shares to a near eight-year trough as tension mounted over the fallout of expected U.S. retaliatory strikes against Afghanistan.

     The rupee hit 48.18 per dollar in morning deals -- crossing 48 for the first time ever -- with the market taking little comfort from central bank assurances it would intervene if necessary.

     The benchmark Bombay exchange index (.BSESN) slumped 6.56 percent to 2,644.56 -- its lowest since November 1993 -- amid fears both of an escalation in regional tension and of sharp losses on Wall Street when U.S. markets reopen for trading.

     ``The region is likely to witness increased instability in view of mounting tensions between U.S. and Afghanistan,'' said Alok Churiwala, managing director of Churiwala Securities.

     Analysts said the current global uncertainties had dealt severe blows to market sentiment already shaken by local political and financial scandals and a grim economic outlook.

     While the immediate impact on the relatively closed Indian economy is still unclear, analysts fear a hike in global crude oil prices and a slowdown in foreign investments will delay prospects of recovery for an economy which has slowed for two straight years.

     RUPEE UNCERTAINTY

     Currency traders said the market was uncertain over the central bank's policy on the rupee and this had sparked demand for dollars from importers.

     The central bank said at the weekend that it was watching markets closely and was ready to intervene directly or indirectly if required. It expected the current volatility to be temporary and said there was no change in its monetary policy of keeping interest rates stable with adequate liquidity.

     Traders said there were dollar sales on Monday morning from state-run banks, which often act on behalf of the central bank, but their quotes were in line with the market and did not suggest intervention to keep the rupee at any specific level.

     Traders also said the uncertainty was driving importers with unhedged positions to buy dollars, driving the rupee down.

     Ironically, many traders suspect the initial weakening of the rupee, which started well before the terror attacks in the United States, had the blessings of the central bank.

     At its lowest, the rupee had weakened by some 3.15 percent against the dollar since January, compared with an average annual depreciation of five-six percent in recent years.

     This includes a 2.17 percent drop in September alone.

     SHARES AWAIT WALL STREET

     Jittery investors unloaded positions ahead of the restart of trading on Wall Street, which has remained shut for four straight days after Tuesday's terror attacks on New York and Washington.

     At its lowest on Monday, the benchmark Bombay index -- amongst the worst performers in Asia this year -- had lost 16 percent since the U.S. tragedy.

     On Monday morning, losers outnumbered gainers by a ratio of nearly ten to one, indicating broad market weakness.

     Shares of software companies, which rely on the U.S. for about 60 percent of their revenues, were the worst hit with Infosys Technologies (INFY.BO) slumping 8.4 percent and Wipro Ltd (WIPR.BO) 13 percent.

     Analysts see little immediate respite, given that a sluggish economy had dampened earnings prospects even before the U.S. attacks.
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