Falling for the second day, the rupee on Tuesday closed down by five paise at 60.12 against the US currency following sustained dollar demand from importers amid capital outflows.
The local currency started the day's trading on a weaker note at 60.11 and dropped further to a low of 60.245 at the Interbank Foreign Exchange (Forex) market.
Later, some dollar selling by exporters amid firm local equities helped the rupee recover to a high of 60.07 before settling at 60.12, still showing a fall of five paise, or 0.08% from previous closing of 60.07. On Monday, it had dipped by 14 paise or 0.23%.
The rupee moved in a range of 60.07-60.24 during the day.
"Rupee continued to trade range bound to end slightly weaker than its previous close. At present, the dollar index is trading near yesterday (Monday) close. During the day rupee got support from the local equities which traded positively and gained by almost one% to end the day," Veracity Group CEO Pramit Brahmbhatt said.
The trading range for the spot rupee is expected to be within 59.60 to 60.60, he added.
The dollar index was down by mere 0.01% against its six major global rivals.
Meanwhile, the BSE benchmark Sensex on Tuesday bounced back by 221.67 points or 0.89% to 25,228.65.
FIIs/FPIs sold shares worth Rs 3.40 crore, as per provisional data.
"Indian rupee was seen trading weak taking cues from its Asian peers today (Tuesday) as dollar gained strength against a majority of currencies due a recovery in the US treasury yields. Janet Yellen's congressional testimony, scheduled after the market hours would be seen giving further direction to the pair," said Abhishek Goenka, founder & CEO, India Forex Advisors.
"Technically, rupee is seen trading in the range of 59.75-60.20 levels. A break out of this range would be crucial for the pair," he added.
Meanwhile, the premium for forward dollar closed mixed.
The benchmark six-month premium payable in December ended a tad lower at 232.5-234.5 paise from 233.5-235.5 paise.
Far-forward contracts maturing in June, 2015, however, rose to 476-478 paise from 472-474 paise.
The Reserve Bank of India fixed the reference rate for dollar at 60.2195 and for the euro at 81.9510.
The rupee declined further against the pound to 103.16 from overnight close of 102.80 while edged up to 81.85 per euro from 81.86.
It also softened to 59.18 per 100 Japanese yen from 59.19.