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The rupee hit two-week closing low of 60.68 by losing 15 paise against the dollar on consistent demand for the US currency from importers and some banks on strong global cues, continuing its downward trend for the fourth straight session.
The dollar gaining strength against its rivals mainly weighed down on the rupee, brokers said.
At the Interbank Foreign Exchange (Forex) market, the domestic currency commenced lower at 60.61 a dollar from previous close of 60.53 and and was trapped in a narrow breadth of 60.53 and 60.6925 before ending at 60.68, a fall of 15 paise or 0.25%. This is rupee's lowest closing since 60.76 on August 16.
The dollar index was up by 0.22% against a basket of six major global units. The Yen slipped toward a five-year low against the dollar on hopes that Japan's Prime Minister Shinzo Abe will appoint assistant to head the ministry in charge of reforming the Government Pension Investment Fund.
The pound and euro also weakened against the American currency on improving US economy that will boost the case for the Federal Reserve to raise interest rates.
"The rupee lost quarter percent during the day taking cues from strong dollar overseas. Local equities posted new all time high which supported Rupee from depreciating further.
On Monday, US markets were closed on Labor Day which created the dollar demand in market for the day.
"Increased dollar demand from importers forced rupee to close low. The trading range for the Spot rupee is expected to be within 60.40 to 61.00," Pramit Brahmbhatt, Veracity Group CEO, said.
Meanwhile, continuing its record-breaking spree, the benchmark S&P BSE Sensex on Tuesday flared up by 151.84 points to end past the 27,000-mark for the first time in the history at 27,019.39. FIIs picked up shares worth Rs 554.14 crore on Monday, as per provisional data.
"Rupee was seen weakening as the US dollar was seen gaining against the basket of currencies.... The US dollar index breached the level of 83.00 for the first time in last one year," said Abhishek Goenka, founder and CEO of India Forex Advisors.
In forward market on Tuesday, premium declined on fresh receipts by exporters.
The benchmark six-month premium payable in February moved down to 245-247 paise from 248.5-250.5 paise previously.
Far-forward contracts maturing in August, 2015 dropped to 490-492 paise from 495.5-497.5 paise.
The Reserve Bank of India fixed the reference rate for dollar at 60.6100 and for the euro at 79.5627.
The rupee recovered against the pound to 100.33 from Monday's close of 100.57 while remained firm to settle at 57.83 per 100 Japanese yen from 58.06. It, however, fell back slightly against the euro to 79.57 from 79.52 previously.