Forex dealers said sustained dollar demand from importers also put pressure on the rupee while persistent capital inflows provided some cushion for the rupee.
The rupee resumed slightly better at 55.60 a dollar from previous close of 55.63 at the Interbank Foreign Exchange market.
It soon touched 55.53 on initial weakness in dollar value in early Asian trade on Thursday.
However, the trend turned negative as the rupee fell back to a low of 55.95 after mid-session on weakness in local shares amid a smart rebound in dollar in European trading.
The euro fell to a two-year low of $1.2175 against the dollar as investors fretted over the lack of progress in tackling the worsening EU debt crisis.
FIIs pumped in Rs 269 crore (Rs 2.69 billion) into local stocks on Thursday, which helped stem the rupee fall. The rupee finally closed at 55.94, a fall of 0.58 per cent.
On Wednesday, the currency had closed 24 paise down.
"The rupee extended its weakness for the second straight session breaching recent lows mostly tracking the weakness in global currencies which hit over two-year lows against USD," said Pramit Brahmbhatt,CEO, Alpari Financial Services (India).
Experts also feel that the recent strength in US dollar is on account of global risk-aversion
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