By Swati Bhat MUMBAI (Reuters) - The rupee weakened on Monday, weighed by losses in the euro versus the dollar but gains in domestic shares helped limit further downside. The partially convertible rupee closed at 45.67/68 per dollar, weaker from 45.615/625 at close on Friday when it touched a seven-week low of 45.77. "There were not much flows in the market today, rupee was just tracking the euro. Policy is not likely to have any direct impact on the spot market, rupee will react to the move in equities tomorrow," said Rohan Naik, head of foreign exchange trading at Standard Chartered Bank. The euro backed off a two-month high against the dollar on Monday after an early burst of buying ran out of steam, while political turmoil in Ireland highlighted uncertainties facing heavily indebted euro zone countries. The dollar index, a measure of the greenback's performance against six major currencies, was up 0.3 percent at 78.442 points when the rupee market closed. The Reserve Bank of India (RBI) may resume its rate hike cycle at the quarterly monetary policy review on Tuesday as soaring inflation stalks Asia's third-largest economy. Forex traders are closely monitoring the policy for its implications on the local stock market. RBI said on Monday inflation may stay high for longer than anticipated earlier due to a rise in global commodities prices and domestic supply side pressures that have recently pushed up food prices. The BSE Sensex ended 0.8 percent higher led by financials in choppy trading as investors remained cautious ahead of the central bank's monetary policy. Foreign funds have sold more than $890 million worth of shares since the start of this month, pushing the rupee down more than 2 percent. In 2010, investments had reached a record $29.3 billion and helped the rupee rise 4.1 percent. One-month offshore non-deliverable forward contracts were quoted at 45.96, weaker than the onshore spot rate. In the currency futures market , the most traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange closed at 45.7175, 45.7150 and 45.7125, respectively, with the total traded volume on the three exchanges at $591 billion. (Editing by Aradhana Aravindan)

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