The rupee weakened for a second day on Thursday, weighed down by losses in the domestic share market on concerns about likely outflows in the event of a sooner-than-expected US Fed taper.
The partially convertible rupee closed at 61.81 per dollar compared with 61.24 on Wednesday. The pair moved in a 61.4825 to 61.90 range during the session.
Worries of sustained inflationary pressures in the economy also prompted investors to short the domestic currency, with the government due to announce November retail price inflation data and October factory output data after market hours.
Asian shares stumbled to a 2-1/2 month low on Thursday on heightened expectations the Federal Reserve may act sooner than later to unwind its stimulus after a provisional budget deal in Washington eased some of the fiscal drag on the U.S. economy.
"With worries over tapering resurfacing, the rupee is trading with a weaker bias but some dollar inflows are seen helping limit further losses," said Uday Bhatt, a foreign exchange dealer with UCO Bank.
Traders said dollar sales by foreign banks were offset by the more than 1 percent decline in the domestic sharemarket.
Indian wholesale inflation is seen remaining close to 9-month highs in November, while factory output is expected to have contracted for the first time in four months in October.
In the offshore non-deliverable forwards, the one-month contract was at 62.31 while the three-month was at 63.21.