In volatile trade, the rupee on Tuesday touched a fresh one-week high of 55.25 against the dollar but gave up most gains to close flat at 55.64 as exporters sold the American currency in view of strong overseas trends.
The rupee, which closed at 55.65 on Monday, resumed higher at 55.39 a dollar at the Interbank Foreign Exchange market.
Thereafter, it touched a high of 55.25 on dollar selling by exporters and initial firmness in local stocks.
The rupee reversed its gains and fell back to the day's low of 55.91, after being hit by heavy dollar demand from importers, mainly oil refiners, on lower oil prices.
It finally closed at 55.64 a dollar after recovering some lost ground.
"Today was a normal trading day without any significant movement.
However, the currency is showing bias towards weakness," T S Srinivasan, GM (Treasury), Indian Overseas Bank said.
"Going ahead, rupee is likely to trade between Rs 55.25-56 level per dollar in the near-term,
Forex dealers said a strong dollar overseas capped the rupee's rise.
The dollar index, consisting of six major currencies was up by over 0.4 per cent and West Texas Intermediate crude for July delivery was trading above $85 a barrel in European market on Tuesday.
The euro declined from a one-week high against the dollar after a Spanish government official called for European Union funds to be used to shore up the nation's banks.
The Euro dropped 0.7 per cent to $1.2416 in New York, after rising to $1.2542, its strongest level since May 29.
Meanwhile, the stock market benchmark Sensex, which was up by over 150 points intra-day, closed up by 32.24 points at 16,020.64.
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