The Indian rupee ended two days of gains to fall by 30 paise to close at 66 against the dollar today on demand from importers as the US dollar strengthened.
The Indian rupee's decline, amid capital outflows and data showing slowing economic growth, was restricted by a rise in local equities, a forex dealer said.
At the interbank foreign exchange market, the local currency started weak at 66.15 to US dollar from the previous close of 65.70 and then climbed to a high of 65.68.
The Indian rupee then turned negative and dropped to a low of 66.30 before recovering some ground to end at 66, a fall of 30 paise or 0.46 per cent. In the previous two trading sessions, it had zoomed by 310 paise or 4.51 per cent.
"On account of US bank holiday, the volumes were quite thin and the rupee was seen trading in a very tight range," said Abhishek Goenka, CEO of India Forex Advisors. "Last week's dismal GDP numbers of India and strength in the US dollar index made the rupee open on a weaker note today."
The benchmark S&P BSE Sensex continued its upward march for the fourth straight session and closed up by another 266.41 points or 1.43 per cent.
Foreign institutional investors withdrew a net Rs 78.85 crore of shares last Friday, as per provisional data with the stock exchanges.
The dollar index, consisting of six major rivals, was up 0.10 per cent ahead of data and central-bank policy this week.
India's gross domestic product growth slipped to 4.4 per cent in the April-June quarter, from 4.8 per cent in January-March.
The HSBC/Markit purchasing managers index for the country's manufacturing industry contracted for the first time in over four and a half years to stand at 48.5 in August, lower than 50.1 in July.
"The trading range for the spot USD-INR pair is expected to be within 65.40 to 66.60," said Pramit Brahmbhatt, CEO of Alpari Financial Services (India).
Forward dollar premiums improved on continued payments from banks and corporates.
The benchmark six-month forward dollar premium payable in February firmed up to 258-265 paise from Friday's close of 247-252 paise. Far-forward contracts maturing in August hardened to 465-471 paise from 440-445 paise.
The RBI fixed the reference rate for the dollar at 65.8608 and for the euro at 87.0575.
The rupee fell to 102.84 against the pound from 101.86 previously and settled