The rupee weakened by 10 paise to end at 66.14 against the US dollar on Friday due to month-end demand for the American currency from importers and banks.
Sustained capital outflows by foreign funds and a sudden spike in crude oil prices globally too weighed on the domestic currency, forex dealers said.
However, a sluggish dollar overseas capped the losses. The rupee resumed almost steady at 66.03 as compared to Thursday's closing level of 66.04 at the Interbank Foreign Exchange (Forex) market on firm local equity markets amid dollar weakness.
But, the domestic unit reversed its trend in late afternoon trade, pressurised by renewed dollar demand and dropped to an intra-day low of 66.21 before rebounding to close at 66.14, showing a loss of 10 paise, or 0.15%.
The rupee had recovered 10 paise to close at 66.04 on Thursday.
The dollar retreated against other major currencies following fresh unwinding by investors after sharp overnight rally sparked by robust second quarter GDP data and renewed expectations of an imminent interest rate hike by the US Federal Reserve.
The dollar index, which measures the greenback's strength against a trade-weighted basket of six major currencies, was down 0.11% at 95.64.
Meanwhile, the benchmark BSE Sensex rose by 161.19 points, or 0.61%, to end at 26,392.38.
Oil eased marginally after overnight sharp rally of over 10%, the strongest daily gain in past six years.
Foreign portfolio investors (FPIs) sold shares worth Rs 3,347.35 crore on Thursday, as per provisional data from the stock exchanges.
Veracity Group CEO Pramit Brahmbhatt said the rupee traded weak on sustained month-end dollar demand from oil importers which forced the local unit to trade weak though the fall was capped as local equities traded strong and closed on a positive note.
The trading range for the spot USD/INR pair is expected to be within 65.60 to 66.60.
In forward market on Friday, premium closed narrowly mixed. The benchmark six-month premium payable in January softened to 181-181.75 paise against 180.5-182.5 paise.
Far-forward contracts maturing in July 2016 moved up to 400-400.5 paise from 398.5-400.5 paise previously.
The RBI fixed the reference rate for the dollar at 66.08 and for the euro at 74.36.
The rupee continued to gain strength against the pound sterling and ended higher at 101.74 from Thursday's level of 101.98 and advanced further against the euro to settle at 74.49 as compared to 74.56.
It also rose against the Japanese currency to finish at 54.70 per 100 yen from 54.93 on Thursday.