Tracking equity markets, the Indian rupee on Tuesday wiped out initial gains and ended 31 paise down at a one-week low of 61.41 against the greenback on fresh dollar demand from banks and importers.
Persistent foreign capital outflows also affected the rupee sentiment, forex dealers said.
The rupee opened higher at 60.94 per dollar as against the last closing level of 61.10 per dollar at the Interbank Foreign Exchange (Forex) Market on initial selling of dollars by banks following overnight losses in the New York market.
However, the rupee washed out initial gains and ended lower at 61.41 per dollar on heavy dollar demand from importers in view of a firm dollar overseas, registering a loss of 31 paise or 0.51%.
Intra-day, it moved in a range of 60.93 per dollar and 61.46 per dollar. Tuesday's closing of 61.41 is the lowest since 61.43 on October 7.
"Supported by lower CPI and WPI data for September the rupee started the Tuesday session strongly... Demand for dollars from defence companies and importers weakened the rupee. The fall was arrested on reports of RBI selling dollars in the spot market. Caution remained ahead of elections in Maharashtra state on Wednesday," said Suresh Nair, director, Admisi Forex.
In London markets on Tuesday, the dollar recovered its footing in Europe after falling to its lowest in a month against the yen amid deepening worries over global growth and a sell-off in equities.
Meanwhile, the Indian stock benchmark Sensex ended lower by 34.74 points, or 0.13%, to end at 26,349.33.
Forex and money markets will remain closed on Wednesday on account of voting for single-phase Assembly elections in Maharashtra.
Pramit Brahmbhatt, CEO, Veracity Group said, the rupee reversed all gains after trading at its highest level since September 23.
In forwards market, premium recovered on fresh payments from banks and corporates.
The benchmark six-month premium payable in March moved up to 215.5-217.5 paise from 214-216 paise on Monday.
Far-forward contracts maturing in September, 2015 also went up to 442-444 paise from 440-442 paise.
The Reserve Bank of India fixed the reference rate for dollar at 61.1078 and for the Euro at 77.6802.
The rupee recovered against the pound to 97.86 from the previous close of 98.40, while it settled at 57.52 per 100 Japanese yen from 56.95.
However, it fell back against the euro to 77.72 from 77.52 on Monday.