The rupee depreciated by 14 paise on Wednesday to close at an over one-week low of 63.60 against the American dollar due to demand from state-owned banks and importers.
A massive rout in financial markets and commodities worldwide jolted by Chinese stock bubble burst also weighed on the local currency, a forex dealer said.
However, the weakness in the US dollar against other Asian currencies limited the rupee's slide.
In overseas trade, the dollar retreated from its one-month high, pressured by stronger yen as well as fresh hopes for a solution to the debt crisis in Greece.
The domestic currency opened substantially lower at 63.55 per dollar compared to overnight closing level of 63.46 at the Interbank Foreign Exchange market on heavy dollar demand from banks and importers amid sharp fall in the domestic equity market.
It drifted further to hit a fresh intra-day low of 63.64 before ending at 63.60, showing a fall of 14 paise, or 0.22% - the level not seen since June 24, this year.
The local currency touched a high of 63.52 during the trade.
The BSE Sensex nosedived by a whopping 483.97 points, or 1.72%, to settle at 27,687.72.
The US dollar index was down by 0.12% at 96.77.
Meanwhile, oil bounced back from a three-month low to around USD 57 a barrel on Wednesday after an industry report showed a larger-than-forecast drop in US crude stocks and also Iran nuclear talks failed to produce a deal.