Rupee drops to 3-week low

The Indian rupee extended losses in afternoon trade on Tuesday dropping to three-week lows as banks bought the U.S. unit to arbitrage in the offshore non-deliverable forwards, while lower stocks also weighed.

* At 12:55 p.m., the partially convertible rupee was at 49.29/30 per dollar, its lowest since Jan. 23 and weaker than Monday's close of 48.84/85.

* One-month non-deliverable forward contracts PNDF were quoting at 49.52/62 per dollar, weaker than the onshore spot rate, providing a good arbitrage opportunity to banks.

* Indian shares fell more than 2.5 percent on Tuesday, with banks among major losers after a higher-than-expected government borrowing plan was seen as denting their outlook in the near term. See [.BO].

* A stronger dollar overseas also dampened sentiment for the rupee.