The rupee on Tuesday hit nearly a six- month low of 55.41 by losing a staggering 30 paise, due to sustained dollar demand from importers and weak local equities, extending losses for the third straight session.
The rupee resumed higher at 54.97 per dollar from previous close of 55.11 at the Interbank Foreign Exchange market.
It touched a high of 54.80 at initial stages on early rally in equities but later, fell back to a low of 55.42 before concluding at 55.41, showing a fall of 30 paise, or 0.54 per cent.
This is rupee's lowest level this year.
It had closed at 55.45 on November 27, 2012.
"The rupee weakened on account of fall in equities and firmness in dollar against euro and other
peers overseas. It is likely to fall to 56-level this week," said Ashtosh Raina, chief dealer at HDFC Bank.
FIIs injected Rs 679.44 crore ($122.6 million) in local equities today, as per BSE provisional data.
The dollar index, consisting of six major currencies, was up by 0.35 per cent, ahead of tomorrow's US Federal Reserve meeting.
There have been reports that Fed's bond buying programme may end earlier than expected.
The bond purchases inject fresh dollar in the market and earlier than expected closing may increase dollar demand as supply gets reduced, said treasury head of a bank.
Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said: "The dollar index, which measures the US dollar's value against a basket of six major currencies, traded strong throughout the day which depreciated rupee by over 0.50 per cent."