MUMBAI, Aug 3 Reuters The Indian rupee weakened sharply in afternoon trade on Wednesday, as worries over the country39;s worsening external balance were heightened following a record trade deficit, while losses in the domestic stock market also added to the fall.

The partially convertible rupee was trading at 79.04 per dollar by 0800 GMT, compared to its close of 78.7125 on Tuesday.

India39;s provisional July trade deficit widened to 31.02 billion, pushed by a rise in crude oil and coal imports, from 10.63 billion a year earlier, a government official said on Tuesday.

There have been concerns over the current account deficit rising sharply and the latest trade numbers add to the worry. With the Reserve Bank of India39;s RBI monetary policy on Friday, we can see some reversal of the recent rally in the rupee, a senior trader with a foreign bank said.

On Tuesday, the rupee rose to 78.49, its strongest level since June 28.

The dollar clung on in choppy trade after its biggest surge for weeks as U.S. Federal Reserve officials talked up the potential for further aggressive interest rate hikes.

Though a rate hike by the RBI on Friday is a given, the expectation over the quantum was widely split between 25 basis points bps and 50 bps, according to a Reuters poll. 

We would recommend buying in this rally as the pair could see a quick reversal if the next U.S. inflation print shows no signs of easing or the U.S. labour market data remains strong refueling large rate…