The rupee on Wednesday closed down by a marginal two paise at 54.16 against the dollar due to fag-end demand for the US currency on reports of defence-related payments.

"Dollar demand for defence-related purchases kept rupee under pressure today which made its movement range bound for the day," said Pramit Brahmbhatt, CEO, Alpari Financial Services (India).

However, sustained capital inflows and strong local equities helped rupee to ease some pressure, forex dealers said.

Overseas investors pumped in Rs 976.99 crore (over $180 million) into domestic stocks today, according to BSE provisional data.

The rupee commenced higher at 54.10 against the dollar from Tuesday's close of 54.14 at the Interbank Foreign Exchange (Forex)

market.

It moved in a range of 54.04-54.20 before settling at 54.16, a fall of two paise, due to mild dollar demand a few minutes before closing of trade.

". . .Globally, the Euro was seen trading above $1.31 levels backed by the strong economic data from Germany.

"However we feel its major trend remains bearish," said Abhishek Goenka, Founder and CEO, India Forex Advisors.

The dollar index was down by 0.25 per cent against a basket of six major global currencies as the euro rose after German industrial output rose more than expected in March.

Meanwhile, the BSE benchmark Sensex on Wednesday rallied by 101.23 points to 19,990.18.

"Though the rupee closed in negative terrain, it was seen supported by the upcoming stake sale and foreign fund flows.