Washing out early gains, rupee on Tuesday depreciated by 14 paise to close at 59.66 on defence-related dollar demand and losses in local stock market.

A firm dollar overseas and concerns over fresh capital outflows weighed on the rupee, a forex dealer said.

At the Interbank Foreign Exchange market, the domestic unit commenced slightly better at 59.50 a dollar from previous close of 59.52.

It later rallied further to a high of 59.17 on initial dollar selling by exporters.

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However, rupee met with strong resistance and fell back sharply to a low of 59.7150 before settling at 59.66, showing a fall of 14 paise or 0.24 per cent.

On Monday, it had fallen by 13 paise or 0.22 per cent, snapping a three-day up move after closing at historic low of 60.72 on June 26.

"Rupee continued its volatile move today as well.  

“The market expectation of government and finance ministry to announce some positive news on the FDI issue boosted the sentiments in earlier sessions.

But later the gains were erased as dollar demand rose in local markets," said Abhishek Goenka, Founder & CEO, India Forex Advisors.

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Treasury officials at private banks said the rise in dollar demand today was on account of ‘defence-related’ payments.

The dollar index was up by 0.21 per cent against a basket of six major global rivals.

Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said: "Dollar index traded strong against the other major currencies which forced rupee to surrender and closed weak for the second consecutive day.

“The major resistance for spot USDINR is set at the 59.88. If it is breached then the next level to watch will be between 60.20- 60.30."