The rupee weakened on Tuesday after the dollar rose to six-month highs versus a basket of currencies overseas, with the Indian unit also pressured by large dollar demand from a foreign bank.
At 10:10 a.m, the partially convertible rupee was at 42.33/34 per dollar, 0.4 percent weaker than 42.155/165 at close on Monday.
"The major reason why the rupee is declining is the dollar's strength overseas. There also seems to be some good dollar outflows from a foreign bank," said the chief dealer with a Mumbai-based state-run bank.
"The dollar rupee would not go below 42.25 on Tuesday, the risk remains on the upside, it could go to 42.35, and if it breaks that we may see 42.40," he added.
The dollar hit a six-month high against a basket of major currencies on Tuesday as mounting concern the global economy is headed for a sharper slowdown spurred more selling of the euro and higher-yeilding currencies.
Dealers said oil prices were not helping drive the rupee upwards, but may help curb the downside.
Oil fell to below $114 a barrel as the dollar climbed, countering concerns over possible supply disruptions due to the Russia-Georgia clash.
India's main share index opened up 0.5 percent, but soon turned negative in early trade, after rising 6.4 percent in the past five sessions, with investors awaiting industrial output data due by noon (0630 GMT) for direction. [.BO]
One-month offshore non-deliverable forward contracts were quoting at 42.27/37 against the dollar, weaker than the onshore rate.