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MUMBAI  - Near-term forward premiums in India surged on Tuesday with the one-month dollar/rupee premium trading at its highest level in more than two decades as massive dollar inflows towards an initial public offering skewed prices.

The partially convertible rupee was trading largely steady at 73.91/92 per dollar at 0830 GMT compared to its close of 73.9150 on Monday after earlier rising to 73.7725 levels.

"As long as the carry is at such elevated levels, no one will go long dollar," the head of foreign exchange trading at a private bank said.

A slight fall in local equities which were down 0.1% each, combined with the global dollar strength, kept a cap on the rupee's early gains.

The U.S. dollar extended gains, unwinding a month long decline as investors weighed chances that interest rates will be forced higher by a U.S. economic recovery and awaited upcoming data and policy speeches for clues.

India's one-month forward premium was quoted at 0.51 rupee after having touched 0.64 rupee earlier in the session, its highest since at least 2000.

The 1-year forward premium touched 4.00 rupee, its highest since August 2016.

"It is mainly due to surplus dollars lying in the system, accumulated mainly because of offshore unwinding and it has been further aggravated by Powergrid flows," a separate dealer with a private bank said.

PowerGrid InvIT's initial public offering closed for subscription on Monday and had attracted a total subscription of $2.78 billion.

Traders said the sudden unexpected surge in forward premiums has made the spot market highly illiquid and volumes are likely to stay subdued until the forward premiums correct.

"Many banks are sitting on large losses due to such erratic moves in forwards. I feel RBI will have to come out with some solution to it," said Paresh Nayar, head of forex and fixed income trading at First Rand Bank.