The Indian rupee was down sharply by 40 paise at Rs 50.70 per US dollar in early trade on Tuesday on persistent dollar demand from banks and importers in view of firmness of the American currency overseas.

The rupee resumed lower at Rs 50.40/41 per dollar on the Interbank Foreign Exchange, as against its previous close of Rs 50.30/31 per dollar, and dropped further to Rs 50.70 per dollar before quoting at Rs 50.67/68 per dollar at 1030 hours.

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The domestic currency hovered in a range between Rs 50.40 and Rs 50.70 during morning deals.

Sustained dollar demand from banks and importers in view of the higher dollar in the New York market mainly affected the rupee value against the American currency, a forex dealer said.

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The US dollar extended its gains against the euro in the New York market yesterday following reports that the sale of five-year Italian government bonds came at the highest cost to the government since 1997.

Traders were also worried that a new technocratic government in Rome still faces daunting challenges in insulating the euro zone's third-largest economy from the region's debt crisis, which weighed on equities and influenced safe-haven flows to the greenback and US treasury bonds.