The Indian rupee recovered from five-month lows against teh US dollar on Friday as some of the currency's recent losses were seen as overdone even as sentiment stayed weak given the global geo-political concerns.
The rupee fell marginally over the week to mark a second consecutive weekly drop, though losses were more limited than last week when the currency posted its worst weekly performance since touching record low levels in August last year.
Analysts say global events will determine the outlook for the rupee, after U.S. President Barack Obama approved air strikes in Iraq, adding to tensions in the Middle East and Ukraine.
Foreign investors have been net sellers of $811.55 million in domestic debt so far this month, as per official data.
Any meaningful signs of a sell-off could spark continued intervention from the Reserve Bank of India, analysts said, after the central bank was spotted selling dollars for a second consecutive session on Friday.
India's foreign exchange reserves fell to $319.99 billion as of Aug. 1, compared with $320.56 billion the week earlier, the Reserve Bank of India said on Friday.
"All eyes are on the geopolitical tensions now," said Paresh Nayar, head of fixed income and foreign exchange trading at First Rand Bank.
"The RBI however is much better equipped to handle the situation, if they feel the rupee levels are going beyond their comfort levels. I think 62.20 is a good resistance for the USD/INR in the short term," he added.
The partially convertible rupee closed at 61.14/15 per dollar compared to 61.22/23 on Thursday. The unit had dropped to 61.74 in early trade, its lowest since March 5.
The rupee however failed to gain much further as domestic shares fell in line with other risk assets raising concerns over the outlook of foreign fund flows going ahead.
Foreign funds have sold $308.88 million worth of equities and $697.72 million worth of debt so far this month.
Most emerging Asian currencies eased on Friday due to geopolitical concerns in Iraq, although strong Chinese trade data helped the unit recover some ground.
In the offshore non-deliverable forwards, the one-month contract was at 61.54/59 while the three-month contract was at 62.18/62.28.